Loans & Mortgages
Total cost of credit
Everything paid goes to the principal or the interest, so subtracting the principal from the total paid isolates the interest. Adding the upfront fee gives the whole cost of the borrowing.
The Formula
C = (M x n - P) + upfront fee
Everything paid goes to the principal or the interest, so subtracting the principal from the total paid isolates the interest. Adding the upfront fee gives the whole cost of the borrowing.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| M | Monthly payment | currency | The fixed payment each month. |
| n | Payments | months | Months in the term. |
| P | Principal | currency | The amount borrowed. |
| F | Upfront fee | currency | Any charge paid at the start. |
| C | Total cost | currency | Interest plus fee. |
What Each Symbol Means
Mcurrency
Monthly payment
The fixed payment each month.
nmonths
Payments
Months in the term.
Pcurrency
Principal
The amount borrowed.
Fcurrency
Upfront fee
Any charge paid at the start.
Ccurrency
Total cost
Interest plus fee.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to compare loan offers page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Compare Loan Offers, filed under Finance. Every number the guide produces comes from substituting into this one line.