Enter the amount borrowed, the interest rate, and the term to estimate the interest cost (cost of funds) under the selected calculator method. For the Simple Cost of Funds tab, the formula assumes simple interest (no compounding and no principal repayments during the term).

Cost of Funds Calculator

Find out what borrowing actually costs — over the full life of the loan.

Loan Cost
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Cost of Funds Formula

The following formula is used to calculate the cost of funds (interest expense) for a simple-interest estimate. It assumes no compounding and no principal repayments during the term. For amortizing loans with periodic payments, use the Amortized Loan Cost tab in the calculator.

COF = B * IR/100 * T
  • Where COF is the cost of funds ($), interpreted here as total interest paid under the simple-interest assumption
  • B is the borrowed amount of funds ($)
  • IR is the interest rate (%) for the same time basis as T (for example, an annual rate when T is in years)
  • T is the total amount of time the funds are borrowed (for example, years when using an annual interest rate)

To calculate the simple-interest cost of funds, multiply the borrowed amount by the interest rate (as a decimal), then multiply by the time period.

Cost of Funds Definition

What is cost of funds?

Cost of funds generally refers to the cost of raising or borrowing money. In many business-borrowing contexts, it is often approximated as the interest expense (and sometimes fees) associated with a loan. In banking and finance, the term is also commonly used to describe the weighted-average rate a financial institution pays to obtain funding (such as deposits and wholesale borrowing).

In this page’s calculator, “cost of funds” is calculated as total interest cost (and, in the amortized tab, also shown as a percent of the original amount borrowed) based on the inputs and stated assumptions.

Example Problem

How to calculate cost of funds?

The following example problem outlines the steps required to calculate the cost of funds for a business project using the simple-interest estimate.

First, find out how much money needs to be borrowed in order to fund the project. For this example, we are looking at a renovation project to the office building that will cost $50,000.00.

Next, determine the interest rate of the borrowed money. After shopping around offers, this company is able to find an interest rate as low as 3.5% per year.

Next, determine the total repayment time on the borrowed funds. The 3.5% loan must be paid off in 5 years in this case.

Finally, calculate the cost of funds using the formula above (simple interest):

COF = B * IR/100 * T

COF = $50,000 * 3.5/100 * 5

COF = $8,750.00