Calculating Interest and Excel Functions:

Find the Total Cost of a Loan Given the Payment Information

When we pay off a loan using monthly payments, we pay more than the loan was originally worth because of interest. To calculate how much the loan costs in total, we multiply the monthly payment and the number of payments made. The following video will show an example of this and will show how to calculate this using Excel.

Video Source (04:09 mins) | Transcript

Total cost = Monthly payment × Total number of payments

Practice Problems

If you pay $1074 each month on your home mortgage for 30 years, how much will you pay in total for the home?

If you pay $367 each month for five years to buy your car, how much is the total cost of the loan on the car?

If you pay $27.52 each month for your cell phone for two years, how much is the total cost of your cell phone?

If you pay your friend $12 each month for nine months to repay a loan, what is the total cost of the loan?

If you pay the credit card company $59.75 each month in order to pay off your credit card, and it takes you 68 months to pay it off, what is the total cost of the credit card loan?

If you have a small business loan and you pay $1850 each month for 10 years on the loan, what is the total cost of the loan?

Solutions

$1074 × 30 × 12 = $386,640 (Written Solution)

When finding the total cost of a loan we start by finding the following:

Monthly payment amount: $1074

Number of years we pay the payment: 30

Number of times per year that we pay the payment: 12
Note: This is 12 because we make monthly payments.

The total cost = (monthly payment)(number of years)(number of times per year that we make the payment)

Total cost = ($1074)(30)(12)

Total cost = $386,640

$367 × 5 × 12 = $22,020 (Written Solution)

When finding the total cost of a loan we start by finding the following:

Monthly payment amount: $367

Number of years we pay the payment: 5

Number of times per year that we pay the payment: 12
Note: This is 12 because we make monthly payments.

The total cost = (monthly payment)(number of years)(number of times per year that we make the payment)

Total cost = ($367)(5)(12)

Total cost = $22,020

$27.52 × 2 × 12 = $660.48

$12 × 9 = $108

$59.75 × 68 = $4063

$1850 × 10 × 12 = $222,000