1. What is Cost of Credit?

Cost of Credit represents the total borrowing cost incurred when obtaining credit, including both interest charges and any associated fees. It provides a comprehensive view of the true cost of borrowing money.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• \( Interest \) — Total interest charges on the credit
• \( Fees \) — All associated fees (application fees, processing fees, etc.)

Explanation: This calculation helps borrowers understand the complete financial burden of credit beyond just the interest rate.

3. Importance of Cost of Credit Calculation

Details: Understanding the total cost of credit is essential for making informed financial decisions, comparing different credit options, and budgeting for loan repayments.

4. Using the Calculator

Tips: Enter the total interest amount and all associated fees in your local currency. Ensure all values are accurate and include any hidden fees for a complete calculation.

5. Frequently Asked Questions (FAQ)

Q1: What types of fees should be included?
A: Include all fees such as application fees, processing fees, annual fees, late payment fees, and any other charges associated with the credit.

Q2: Is cost of credit the same as APR?
A: No, APR (Annual Percentage Rate) includes both interest and some fees, but cost of credit represents the actual total monetary amount you'll pay.

Q3: Why calculate cost of credit separately?
A: It helps you see the actual dollar amount you're paying, which can be more meaningful than percentage rates when comparing different loan amounts.

Q4: Should I include opportunity cost?
A: This calculator focuses on direct financial costs. Opportunity cost (what you could have earned with the money elsewhere) is a separate consideration.

Q5: How can I reduce my cost of credit?
A: Compare lenders, negotiate fees, maintain good credit, choose shorter loan terms, and make extra payments when possible.