How to Calculate the Total Cost of a Personal Loan

The interest rate may be the first number you notice when comparing personal loans, but it does not necessarily tell you how much the loan will cost altogether.

Interest, establishment fees, ongoing charges, the loan term and your repayment schedule can all affect the final amount. Conditional costs, such as missed-payment fees, may also increase what you pay if something goes wrong.

At Sunshine Loans, we believe it is important that you understand the full cost of borrowing before deciding whether a loan may be appropriate for your circumstances.

Understanding the total cost of a personal loan can help you compare your options more accurately and decide whether the repayments are manageable within your budget.

What Is the Total Cost of a Personal Loan?

There are two related figures to understand:

• Total amount repaid: Everything you pay under the loan over its life, including repayment of the money you borrowed.
• Total cost of borrowing: The interest and fees you pay on top of the amount borrowed.

The basic formulas are:

Total amount repaid = scheduled repayments + fees paid separately + any final payment

Total cost of borrowing = total amount repaid − amount borrowed

Before using these formulas, check whether fees are already included in your scheduled repayments. Adding the same fee twice will make your calculation inaccurate.

For example, if an establishment fee is already included in your repayment schedule, you should not add it again as a separate cost.

How to Calculate the Total Cost of a Personal Loan

Your credit contract or loan offer should contain the figures you need. You can work through the following steps before accepting an offer.

1. Confirm How Much You Are Borrowing

Start with the principal, which is the amount of credit provided under the loan.

Check whether any establishment or application fee is:

• Paid upfront.
• Deducted from the money transferred to you.
• Added to the amount financed.
• Included in your regular repayments.

The amount shown as your loan principal may not always be the same as the cash you receive, so read your offer carefully.

2. Find the Regular Repayment Amount

Record how much you are required to repay each week, fortnight or month.

Then confirm the total number of repayments. Do not assume that a six-month loan has six repayments, particularly when repayments are made weekly or fortnightly.

Use this calculation:

Regular repayment × number of repayments = total scheduled repayments

Keep in mind that a displayed repayment may be rounded. When available, use the total repayment figure shown in your credit contract rather than relying only on your own multiplication.

3. Check How Interest Is Charged

The interest rate is the percentage charged for borrowing the money. However, multiplying the original loan amount by the annual interest rate will not always give you an accurate total.

Many loans calculate interest on the outstanding balance. As you make repayments and reduce that balance, the amount used to calculate interest may also fall.

Your interest cost may also be affected by:

• Whether the rate is fixed or variable.
• How frequently interest is calculated.
• The length of the loan.
• The timing of repayments.
• Additional or early repayments.
• Missed or late repayments.

When possible, use the interest amount disclosed in your loan offer or an appropriate loan calculator.

Moneysmart notes that calculator results are estimates rather than predictions, and some calculators may not include establishment or account fees.

4. Add Mandatory Loan Fees

Interest is only one part of the cost. Review your contract for fees that apply simply because you take out or maintain the loan.

Add any mandatory fees that are not already included in your repayment total.

5. Record Conditional Charges Separately

Some costs apply only in particular circumstances. You do not necessarily need to include these in your expected total, but you should understand how they could affect what you pay.

Conditional costs may include:

• Missed-payment or default fees.
• Default interest.
• Direct-debit dishonour fees.
• Early repayment or loan-closure fees.
• Contract variation fees.
• Enforcement or debt-recovery costs.

Moneysmart recommends checking for application, ongoing, missed-payment and early repayment fees when comparing personal loans.

It can be useful to keep these costs in a separate “what if” calculation. This can help you understand the possible financial effect of a missed payment without assuming that it will happen.

6. Calculate the Final Figures

You can use this worksheet:

Do not include a fee in rows E or F if it is already included in the scheduled repayments in row D.

What Costs Affect the Total Amount You Repay?

The Interest Rate

A higher interest rate will generally increase the cost of borrowing, but you should consider the rate together with the fees and loan term.

A loan with a relatively low advertised interest rate could still cost more overall if it has substantial establishment or ongoing fees.

The Loan Term

A longer loan term can reduce each regular repayment because the debt is spread over more time. However, it can also increase the total interest you pay.

A shorter term may reduce the amount of interest charged but require larger regular repayments.

Moneysmart advises comparing both repayment affordability and total cost when reviewing personal loans.

The lowest total cost will not necessarily be suitable for you if the required repayments leave you unable to cover rent, food, utilities and other essential expenses.

Fixed or Variable Interest

With a fixed rate, the interest rate generally remains the same for the agreed period. This can make your repayments easier to predict.

A variable rate may rise or fall. If it rises, your repayments or total interest cost may increase.

Check your loan terms so that you understand how a rate change could affect you.

Fees

A fixed fee can have a significant effect on a smaller or shorter-term loan.

When comparing your options, look at the dollar value of all applicable fees rather than focusing only on the advertised interest rate.

Your Repayment Behaviour

Missing a scheduled payment may result in fees, default interest or other costs under your contract. It may also make it harder to bring your loan back up to date.

Paying a loan out early may reduce interest on some products, but you should first check whether an early repayment fee applies.

How Does a Comparison Rate Help?

A comparison rate combines the interest rate with most fees and charges into one percentage.

It can help you compare the cost of different credit products, particularly when one loan has a lower interest rate but higher fees.

However, a comparison rate is a guide rather than a personalised total.

It is based on a specific loan amount and term, which may be different from the amount and term you are considering. It may also exclude charges that apply only in certain situations, such as some early repayment or default costs.

When comparing rates, check:

• The loan amount used in the comparison-rate example.
• The assumed loan term.
• Which fees are included.
• Whether your actual rate could be different.
• Any conditional charges that are not included.

The most useful figure for your own decision is the total amount payable under your specific loan offer.

Common Mistakes When Calculating Personal Loan Costs

Looking Only at the Interest Rate

The interest rate does not include every fee.

Review the comparison rate, repayment schedule and fee disclosures as well.

Confusing Repayments With Borrowing Costs

Your regular repayments include repayment of the principal.

The entire repayment amount is therefore not a fee or interest charge.

Subtract the amount borrowed from the total amount repaid to identify the cost of borrowing.

Counting a Fee Twice

If a fee has been financed or is already included in your scheduled repayments, you should not add it again.

Using the Wrong Repayment Frequency

There is a significant difference between 12 monthly repayments and 26 fortnightly repayments.

Confirm the repayment frequency and total number of payments shown in your contract.

Forgetting a Final Payment

Some loans have a final payment that is larger than the regular instalments.

Make sure you include it when calculating the total amount repaid.

Treating an Online Calculator as an Exact Quote

A calculator can be useful when comparing scenarios, but your final figures will depend on the lender’s calculation method, applicable fees and your actual contract.

How the Calculation Applies to Our Sunshine Loans Product

We currently offer unsecured Medium Amount Credit Contracts from $2,050 to $3,500, with terms ranging from 63 to 182 days.

Amounts above $2,500 are limited to eligible returning customers who have successfully completed two Sunshine Loans on time.

Our current product includes:

All applications are subject to eligibility, affordability assessment and approval.

Sunshine Loans Pty Ltd holds Australian Credit Licence number 390556.

You can review our current loan costs and fees before considering an application.

Our Representative Example

For a $2,050 loan over 26 weeks, our published representative example shows:

Based on those published figures, the cost above the $2,050 borrowed is $712.48, comprising $312.48 in interest and the $400 establishment fee.

The weekly repayment is an approximate rounded figure. The total repayment disclosed in the representative example should be used when reviewing the overall cost.

Our comparison rate is 66.2% per annum, calculated on a $2,500 loan over two years.

The $2,500 loan amount and two-year term are prescribed for the comparison-rate example. We do not offer our Medium Amount Credit Contracts over two years.

WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Your actual repayments and total cost will depend on your approved amount, loan term and credit contract.

Always check your personalised offer before deciding whether to proceed.

Questions to Ask Before Accepting a Personal Loan

Calculating the total cost is important, but affordability matters just as much.

Before accepting a loan, you may want to ask yourself:

• Is the expense necessary and genuinely one-off?
• Can I delay the expense while I save?
• Could the service provider offer a payment arrangement?
• Will I still be able to pay for essential living expenses?
• What happens to my budget if an unexpected bill arrives?
• Are lower-cost or no-interest options available?
• Am I borrowing only the amount I need?

For essential goods or services, some eligible Australians may be able to access a No Interest Loan of up to $2,000.

Moneysmart recommends considering this option before using higher-cost credit for eligible essential expenses.

If you are already struggling to meet existing repayments or essential household costs, contact your lender or service provider about hardship assistance.

A free financial counsellor can also help you review your options without turning the conversation into a loan application.

Frequently Asked Questions

Does the Total Cost of a Personal Loan Include the Amount Borrowed?

The total amount repaid includes the amount borrowed, interest and applicable fees.

The cost of borrowing includes only the interest and fees you pay above the principal.

Can I Calculate Loan Interest by Multiplying the Rate by the Loan Amount?

That method may not be accurate when interest is calculated on a reducing balance.

Use the interest amount and total repayment disclosed in your loan offer or an appropriate calculator when possible.

Is the Comparison Rate the Same as the Total Cost?

No.

A comparison rate is a percentage designed to help you compare loans.

It does not tell you the exact dollar cost of your individual loan and may not include every conditional charge.

Does a Longer Loan Term Make a Personal Loan Cheaper?

Not necessarily.

A longer term may reduce each regular repayment but can increase the total interest charged.

Compare both the repayment amount and the total amount payable.

Do Missed Payments Increase the Total Cost?

They can.

Depending on your contract, a missed payment may result in:

• A default fee.
• A dishonour fee.
• Default interest.
• Other recovery costs.

Contact your lender as soon as possible if you think you may miss a repayment.

For our current product, we charge a $35 failed-payment default fee when a scheduled repayment is missed.

Can Paying a Loan Off Early Reduce the Cost?

Early repayment may reduce future interest on some loans, although some lenders may charge an early repayment or closure fee.

For our current Sunshine Loans product, you can repay your loan early without an early repayment penalty.

Confirm the current payout amount before making your final payment.

Understand the Cost Before Deciding

The easiest way to understand the total cost of a personal loan is to start with the complete repayment schedule, add any mandatory costs that are not already included and then subtract the amount borrowed.

Do not rely on the interest rate alone.

Check:

• The applicable fees.
• The loan term.
• The repayment frequency.
• The comparison rate.
• The total amount payable.
• Possible default costs.

You can review our current loan cost information, read our eligibility requirements and explore our frequently asked questions before deciding whether our product may be suitable for your circumstances.

Consider your budget and alternatives first. Apply only if the loan is for an appropriate personal purpose and you believe you can comfortably meet every repayment.

All applications are subject to eligibility, assessment and approval.

The information provided in this blog is for general informational purposes only and does not constitute financial advice. It is not tailored to the specific circumstances of any individual. Before acting on the information, you should consider whether it is appropriate for you, having regard to your objectives, financial situation and needs.