Total Loan Cost
The total loan cost represents the sum of all payments made over the entire loan term, combining the principal amount borrowed, interest charges, and any applicable fees such as origination costs, documentation fees, or service charges. This figure provides the most accurate picture of how much a car actually costs when financed, as the sticker price alone can be misleading once financing charges are included.
Borrowers often underestimate the total cost of a loan by focusing only on monthly payments. However, even small changes in interest rate or loan term can add thousands of dollars to the total expense.
For example, stretching a loan term to achieve affordable monthly payments often results in much higher total interest paid. Lenders are required to disclose the total repayment amount in loan agreements, helping borrowers make informed comparisons between offers.
Calculating total loan cost is essential when evaluating affordability, deciding on loan terms, or determining whether refinancing makes sense. By analyzing this number, borrowers gain clarity on the true financial impact of financing and can better balance short-term affordability with long-term savings.
Formula
Total Loan Cost = (Monthly Payment × Number of Months)Example
Tom finances $25,000 for 72 months at a 7% interest rate. His monthly payment is about $425. By the end of the loan, he has paid nearly $30,600 in total, meaning the loan cost him $5,600 more than the vehicle’s price due to interest.