How this calculator works
A finance charge is the whole cost of borrowing, not just the interest rate. In the disclosure framework used for consumer credit, it is the total of payments minus the amount financed, plus any prepaid finance charges paid at closing such as points or an origination fee. Two loans with the same payment can carry different finance charges if one requires more upfront fees. This calculator assumes level monthly payments at the stated rate and treats the prepaid charge as paid at the start rather than financed; if it is added to the balance, include it in the amount financed instead.
Formula
i = APR / 12; A = P × i / (1 - (1 + i)^(-n)). Total of payments = n × A. Finance charge = total of payments + prepaid charges - amount financed. Total cost = amount financed + finance charge. Interest per day at the start = P × APR / 365.
Worked example
A $12,000 loan at 9.5% over 48 months has a payment of $301.48, so the total of payments is $14,470.93. Adding a $150 prepaid charge and subtracting the $12,000 financed gives a finance charge of $2,620.93, and the total cost is $14,620.93. Interest in the first month is $95.00, or about $3.12 a day.
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Frequently asked questions
Is the finance charge the same as interest?
No. Interest is the charge for the use of money over time; the finance charge also includes prepaid fees that the law treats as part of the cost of credit. That is why the finance charge can exceed the interest expense.
Why is a fee paid at closing included?
You pay it to obtain the loan, so it is part of what the borrowing costs. Excluding it would make a loan with high fees look cheaper than it is.
Does this match a lender disclosure exactly?
It follows the same idea but not every rule. Real disclosures use specific rules about which charges count, rounding and the actuarial method, so the lender figure may differ by a small amount.
What if the fee is deducted from the loan?
Then you repay the full amount but receive less. Enter the full amount as financed and the fee as a prepaid charge, which is what this calculator does, so the total cost is measured against what you actually receive.