Calculator
What Your Loan Actually Costs
$20,000 over 60 months at $400 a month.
- Total paid
- $24,000
- Total interest
- $4,000
- Effective annual cost
- 7.42%
- Compound basis
- 7.68% a year
- A 4.90% loan on the same terms
- $377 a month, $2,591 of interest
Estimations only — based on the numbers you enter. Not financial advice.
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Where the stated rate and the paid rate separate
A stated APR describes the contract. What you actually pay each month is a separate fact, and it can imply a different annual cost once fees, add-ons, or a longer term are folded in. Feeding the three numbers above into the calculation returns the rate implied by the cash flows themselves.
The example, step by step
$20,000 borrowed, $400 paid 60 times. Total out the door is $24,000, so $4,000 goes to cost. Discounting those 60 payments back to today at a single rate returns 7.42% a year on a single-rate basis, or 7.68% compounded monthly. The same loan at a stated 4.90% would require $377 a month — $23 less — and would cost $2,591 in interest instead of $4,000.
What moves the number
Term length moves it most: stretching the same $4,000 of cost over more months lowers the monthly figure while raising the annual rate. A dealer add-on financed into the principal moves it next. Both are visible only when you compare the stated rate against the paid rate.
Questions
- Why is my computed rate different from the rate on my contract?
- The contract rate prices the loan; the computed rate prices the payments. Fees, add-ons, and term length sit between the two.
- Which number do I use to compare two offers?
- Compare the computed rates. Two offers with the same monthly payment and different terms do not have the same annual cost.
- What if I don't know my original amount?
- The calculation needs all three fields; with two of them the rate is not determined.
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