What is total cost of credit?
Total cost of credit is the amount you pay for borrowing above the original amount borrowed. It usually includes interest and relevant fees, showing the real cost in pounds rather than only as a percentage.
Total cost of credit quick reference
Total cost of credit explained in plain English
Total cost of credit tells you what the borrowing costs you, in pounds. If you borrow £10,000 and repay £11,600 in total, the total cost of credit is £1,600. The original £10,000 is the money you borrowed; the extra £1,600 is the cost of having that credit.
This is useful because percentages can be hard to feel in real life. A loan may have an attractive monthly payment or a reasonable-looking APR, but the total cost of credit shows the actual amount you pay above the amount borrowed.
Total cost of credit is affected by the amount borrowed, interest rate, fees, repayment term and how the repayment is structured. A longer term can reduce the monthly payment but increase the total cost because interest is charged for more months.
It is also important to separate total cost of credit from total amount repayable. Total amount repayable is everything you pay back, including the original borrowing. Total cost of credit is only the extra cost of borrowing. Both numbers matter when comparing credit products.
Total cost of credit formula
The simplest version subtracts the original amount borrowed from the total amount you repay.
total_amount_repayable = all repayments + fees
total_cost_of_credit = total_amount_repayable − amount_borrowed
Example:
amount borrowed = £10,000
total repaid = £11,600
total cost of credit = £1,600
Calculate total borrowing cost
Use the loan repayment calculator to estimate monthly payment, total repaid and total interest from the APR and term.
Simple examples
These examples show why total cost of credit can change even when the amount borrowed is the same.
| Borrowing example | APR | Term | Total amount repayable | Total cost of credit |
|---|---|---|---|---|
| £10,000 personal loan | 6% | 5 years | About £11,600 | About £1,600 |
| £10,000 personal loan | 12% | 5 years | About £13,350 | About £3,350 |
| £10,000 personal loan | 12% | 7 years | Higher than the 5-year version | Usually higher because the term is longer |
Total cost of credit vs APR
APR is useful for comparing the rate. Total cost of credit is useful for understanding the actual cost. Monthly payment is useful for budgeting. A good borrowing comparison should look at all three.
What affects total cost of credit?
- APR: a higher APR usually increases the cost of borrowing.
- Term length: a longer term can increase cost even if the monthly payment is lower.
- Fees: arrangement, broker, transfer or account fees can increase total cost.
- Repayment structure: balloon payments, interest-only periods or minimum payments can change the cost.
- Overpayments: extra repayments can reduce interest if the agreement allows them.
- Missed payments: fees and extra interest can increase the final cost.
When total cost of credit matters most
Total cost of credit matters whenever two borrowing options have different terms, fees or monthly payments. A lower monthly payment may look more affordable, but the total cost can be higher if the borrowing lasts longer.
It is especially important for debt consolidation, car finance, credit cards and Buy Now Pay Later fees. These products can all look manageable month to month, while the full cost depends on fees, repayment speed and how long the balance remains active.
Compare APR and fees together
If you know the repayment amount, term and fees, use the APR calculator to estimate the implied borrowing rate.