Enter the total credit amount ($) and the credit rate (%) into the Credit Cost Calculator. The calculator will evaluate and display the Credit Cost. 

Credit Cost Formula

The following formula is used to calculate the Credit Cost. 

CC = A * CR/100
  • Where CC is the Credit Cost ($)
  • A is the total credit amount ($) 
  • CR is the credit rate (%) 

To calculate the credit cost, multiply the credit amount by the credit rate.

How to Calculate Credit Cost?

The following example problems outline how to calculate Credit Cost.

Example Problem #1:

  1. First, determine the total credit amount ($). The total credit amount ($) is given as 13,000.
  2. Next, determine the credit rate (%). The credit rate (%) is provided as 5.
  3. Finally, calculate the Credit Cost using the equation above: 

CC = A * CR/100

The values given above are inserted into the equation below:

CC = 13,000 * 5/100 = 650 ($)


FAQ

What is a credit rate and how does it affect the cost of credit?

The credit rate, usually expressed as a percentage, is the interest rate charged on the amount borrowed. It directly affects the cost of credit by determining how much extra (in addition to the borrowed amount) the borrower needs to pay back. A higher credit rate increases the cost of credit, while a lower rate reduces it.

Can the credit cost change over time?

Yes, the credit cost can change over time if the credit rate is variable and not fixed. In cases where the credit rate is tied to an index or a benchmark interest rate that fluctuates, the cost of credit will also vary accordingly. Borrowers with fixed-rate credit will not see their credit cost change over the loan period.

Are there any additional costs involved in credit besides the credit cost calculated using the formula?

Yes, there can be additional costs involved in credit that are not covered by the simple calculation of credit cost using the principal amount and the credit rate. These can include origination fees, administrative fees, late payment penalties, and other charges that lenders might apply. It’s important for borrowers to understand all the potential costs associated with a credit agreement before committing.