total cost of credit
Also called: cost of a loan
Everything paid on a loan minus the money received: interest, every fee and any insurance required to get it.
The total cost of credit is the honest price of borrowing: add up every payment you will make, subtract the amount you actually receive, and what is left is what the loan costs. It includes interest, monthly service fees, one-off issue fees and insurance that is a condition of the loan.
The advertised rate often hides it. A loan at "0% interest" with a monthly fee on the original amount can cost as much as a credit card, because the fee keeps being charged on money already repaid. A fee taken at the start means you receive less than you repay on.
To compare loans of different lengths, turn the total cost into a yearly figure: the real annual rate that lenders in Ukraine must disclose. A lower monthly payment over a longer term usually means a higher total cost.
Example
To pay off a 52,800 UAH card balance, offer A is "0% interest" plus a monthly fee of 1.9% of 52,800 for 24 months: 24 × 3,203.20 = 76,876.80 paid, a total cost of 24,076.80. Offer B, 32% a year with no fees: 24 × 3,006.83 = 72,163.92, a total cost of 19,363.92. The "0%" offer costs 4,712.88 more.
Common mistakes
- Trusting "0%". Look for fees and a raised price.
- Comparing payments. A lower payment over more months usually costs more.
- Forgetting up-front fees. They raise the real cost without changing the advertised rate.
- Counting the borrowed amount as a cost. Only what you pay on top of it is.
Learn it in the course
- APR: the real annual cost of a loan · APR vs interest rate: why "0%" can cost as much as a credit card, and how to compare loans by everything you pay, not by the advertised rate or the monthly payment.