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Total Cost Formula:
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The total cost of borrowing represents the actual amount you pay for a loan beyond the principal amount borrowed. It includes all interest charges, fees, and other costs associated with the loan over its entire term.
The calculator uses a simple formula:
Where:
Explanation: This calculation reveals the true cost of credit by showing how much extra you pay beyond the amount originally borrowed.
Details: Understanding the total cost of borrowing helps consumers make informed financial decisions, compare loan offers effectively, and budget for the true expense of credit products.
Tips: Enter the total of all payments you will make (including both principal and interest) and the original principal amount. Both values must be in Canadian dollars and greater than zero.
Q1: What costs are included in the total borrowing cost?
A: The total cost includes all interest charges, fees, insurance premiums (if required), and any other mandatory costs associated with the loan.
Q2: Why is the total cost of borrowing important?
A: It helps you understand the true expense of credit, allowing for better comparison between different loan products and lenders.
Q3: Are there regulations about disclosing borrowing costs in Canada?
A: Yes, Canadian lenders are required to disclose the total cost of borrowing and the annual percentage rate (APR) to help consumers make informed decisions.
Q4: Does this calculator work for all types of loans?
A: Yes, this calculation applies to mortgages, personal loans, car loans, credit cards, and any other form of credit where you make regular payments.
Q5: How can I reduce my total borrowing costs?
A: You can reduce costs by shopping for lower interest rates, making larger payments when possible, avoiding unnecessary fees, and choosing shorter loan terms.