How do you calculate the true cost of credit ?

18 December 2023

The true cost of credit is an important factor to take into account when considering applying for a loan. To calculate the true cost, you need to take several factors into account.

Firstly, there's the interest rate on the loan. The higher the rate, the higher the total cost of the loan.

Then there are the additional charges, such as administration fees, guarantee fees and insurance costs. These charges can vary considerably depending on the type of loan you are applying for.

Finally, you need to consider the term of the loan. The longer the loan, the higher the total cost because of the interest.

To calculate the true cost of a loan, you can use an online loan simulator that will take all these factors into account. Simply enter the amount of the loan, the interest rate, the term of the loan and any additional charges to get an estimate of the total cost.

Alternatively, you can use a mathematical formula to calculate the total cost by multiplying the loan amount by the interest rate, then adding the additional charges and multiplying by the number of years of the loan.

Whichever way you choose, it's important to consider the true cost of credit before signing a loan contract.

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