Finance Calculator

What this calculator tells you

When you buy something expensive and pay for it over time, you need to know the monthly cost and the total you will pay, not just the sticker price. This calculator takes a purchase price, a deposit and a loan with an interest rate and term, and shows the monthly payment, the interest and the total cost of the purchase.

It is designed for financed purchases such as a vehicle, equipment or furniture on credit. For a home mortgage, the structure is similar, but mortgage terms, fees and tax rules are more specific, so use the figures as an estimate and check the offer.

How the total cost is worked out

The amount borrowed is the purchase price minus the deposit. The monthly payment is then worked out from that loan amount, the monthly interest rate and the number of monthly payments, using the standard loan formula. The total repaid is the monthly payment multiplied by the number of payments, plus the deposit. The total interest is the total repaid minus the amount borrowed.

A worked example

Suppose a purchase costs 20,000 and you put down 4,000, borrowing 16,000 at 6% a year over five years. The monthly payment is about 309. Over 60 payments you repay about 18,560, so the interest is about 2,560. Adding the deposit, the total cost of the purchase is about 22,560, which is 2,560 more than the price.

Deposits, fees and the true cost

A larger deposit reduces the loan, the monthly payment and the interest. It also reduces the risk of owing more than the item is worth, which can happen with products that lose value quickly. Ask whether the deposit is refundable, and check for any charges that are added to the loan, such as arrangement fees, which increase the interest you pay.

Compare the total cost, not only the monthly payment. A long term can make an expensive item look affordable each month while costing considerably more overall.

Assumptions and limits

The calculator assumes a fixed rate, equal monthly payments, and that the full term is completed. Taxes and sales charges on the purchase are not included unless added to the price. Any balloon payment, optional insurance, maintenance costs or depreciation are excluded, and they can change the real cost of ownership.

Checking the offer before signing

Ask the seller or lender for the cash price, the total amount payable under the finance and any charges included in the loan. Compare these figures with the calculator result, because a difference may signal extra fees or a higher rate than the advertised one. Keep copies of all figures used.

If the purchase will be used for work, check whether the cost can be claimed or depreciated under local rules, but do not assume it can. Tax treatment varies, and advice from a qualified professional is worth taking for larger amounts.

Using the result

Use the monthly payment to check that the purchase fits your budget with room for other costs, and the total cost to decide whether the item is worth the financing charge. Where possible, compare the total cost of paying cash or saving for the purchase, because avoiding interest is a saving in its own right.

Deciding between paying cash and financing

A financed purchase is worth comparing with paying cash or saving for a while first. Compare the total interest and fees with the return you could earn on the money you would otherwise use, and consider the risk of having little cash left if an emergency arises. Financing can make sense for a necessary purchase with a low rate, but it is harder to justify for a discretionary one that you could afford to save for.