Use the Financing Cost Calculator to estimate how much financing a purchase or loan will cost over its full term. Enter the amount being financed, interest rate, loan term, and any financing fees to calculate the monthly payment, total interest, total financing cost, and total amount paid.
Financing Cost Formula
Financing cost is the additional amount paid to borrow money rather than paying the full amount in cash. For this calculator, the total financing cost is calculated as the total interest paid over the loan term plus any financing fees.
- FC is the total financing cost ($)
- I is the total interest paid over the loan term ($)
- F is the financing fees entered into the calculator ($)
To determine the interest portion of the financing cost, the calculator first determines the amount borrowed and then calculates the payment required to amortize that balance over the selected term.
Step 1: Calculate the Base Amount Borrowed
When financing a purchase, subtract the down payment from the cash price:
- B is the base amount borrowed ($)
- C is the purchase or cash price ($)
- D is the down payment ($)
If you already know the loan principal, you can enter the loan amount directly instead.
Step 2: Determine the Amount Financed
If financing fees are added to the loan balance, add them to the base amount borrowed:
When the fees are paid upfront instead, the amount financed is simply:
Where P is the balance used to calculate the monthly loan payment.
Step 3: Calculate the Monthly Payment
For a fixed-rate, fully amortizing loan, the monthly payment is calculated using the standard loan payment formula:
- M is the monthly payment ($)
- P is the amount financed ($)
- r is the monthly interest rate as a decimal
- n is the total number of monthly payments
The monthly rate is found by dividing the annual interest rate by 12 after converting the percentage to decimal form.
If the interest rate is 0%, the payment is simply the amount financed divided by the number of payments.
Step 4: Calculate Total Interest
Multiply the monthly payment by the number of payments and subtract the amount financed:
The financing cost is then the total interest plus the financing fees:
What Is Financing Cost?
Financing cost is the additional cost associated with borrowing money to make a purchase or obtain a loan. Instead of looking only at the monthly payment, financing cost measures how much the borrowing itself adds to the amount you ultimately pay.
For example, if you borrow $20,000 and ultimately pay $24,000 in loan payments plus a $500 financing fee, the financing has added $4,500 to the cost of borrowing the original $20,000.
Common financing costs can include interest and certain lender or origination fees. The exact fees included in a lender’s official finance charge can depend on the type of transaction and applicable disclosure rules, so this calculator should be used as an estimate rather than as a substitute for a lender’s official loan disclosures.
How to Use the Financing Cost Calculator
- Choose how to enter the amount. You can enter a purchase price and down payment or enter the loan principal directly.
- Enter the annual interest rate. Use the loan’s interest rate when separately entering financing fees.
- Enter the loan term. Enter the number of months over which the loan will be repaid.
- Enter any financing fees. If there are no fees, leave this field blank.
- Choose whether the fees are paid upfront or financed. Financing a fee increases the balance on which interest is calculated.
- Click Calculate. The calculator will return the monthly payment, interest cost, fees, total financing cost, and total amount paid.
Financing Cost vs. Interest
Interest is only one component of financing cost. Interest is the amount charged for using borrowed money, while financing cost can also include fees associated with obtaining the financing.
For example, a loan could produce $3,000 of interest and require a $500 origination fee. Using the definition in this calculator, the total financing cost would be $3,500.
Financing Cost vs. APR
Financing cost and annual percentage rate are related, but they are not the same measurement. Financing cost is expressed as a dollar amount in this calculator. APR expresses the cost of credit as an annualized percentage rate and can incorporate both the interest rate and applicable loan fees.
Because the calculator allows financing fees to be entered separately, use the underlying loan interest rate rather than a fee-adjusted APR whenever both figures are available. This prevents the same fee from effectively being represented twice in the estimate.
Financed Fees vs. Upfront Fees
A financing fee can either be paid separately when the loan begins or added to the loan balance. The fee itself costs the same amount in either case, but financing the fee can make the loan more expensive because interest is then charged on the fee as part of the loan balance.
For example, adding a $1,000 origination fee to a multi-year loan generally costs more than $1,000 over the full term because the borrower also pays interest on that additional $1,000 of principal.
Financing Cost Example
Suppose a purchase has a cash price of $25,000 and the buyer makes a $3,000 down payment. The remaining $22,000 is financed for 60 months at a 7.5% annual interest rate. The loan also has $500 in financing fees that are paid upfront.
The base amount borrowed is:
Using a 7.5% annual interest rate and a 60-month term, the monthly payment is approximately:
Monthly Payment = $440.83
Over 60 payments, approximately $4,450.09 of interest is paid.
The total financing cost is therefore:
Total Financing Cost = $4,950.09
The total amount ultimately paid for the $25,000 purchase, including the cost of financing, is approximately $29,950.09.
Why the Total Financing Cost Matters
A low monthly payment does not necessarily mean financing is inexpensive. Extending the loan term can reduce the required monthly payment while increasing the amount of interest paid over the life of the loan.
Looking at the total financing cost makes it easier to compare the long-term effect of different interest rates, terms, down payments, and financing fees.
FAQ
What is included in the financing cost?
This calculator defines financing cost as the total interest paid over the loan term plus the financing fees entered by the user. Actual lender disclosures may classify particular charges differently.
Is a down payment part of the financing cost?
No. A down payment is part of the purchase price that is paid immediately rather than borrowed. It reduces the amount that needs to be financed but is not itself a cost of borrowing.
Are financing cost and interest the same thing?
Not necessarily. Interest is a major part of the financing cost, but financing fees can increase the total cost of obtaining credit.
Is financing cost the same as APR?
No. This calculator expresses financing cost as a dollar amount. APR expresses the cost of credit as an annualized percentage rate and can account for both interest and applicable fees.
Does financing a fee increase its cost?
Usually, yes. When a financing fee is added to the loan balance, the borrower can pay interest on that fee throughout the repayment term. The calculator automatically includes this additional interest.
Why can a longer loan term cost more?
A longer term spreads repayment across more months and can lower the monthly payment, but it also leaves the balance outstanding for longer. At the same interest rate, this generally increases the total interest paid.
Can this calculator be used for car loans, personal loans, and equipment financing?
Yes, it can be used to estimate financing costs for many fixed-rate loans with equal monthly payments. It is not designed for credit cards, interest-only loans, balloon loans, variable-rate loans, leases, or loans with irregular payment schedules.