The total cost of finance: the one number every shopper needs

At the market, the price on the sign isn’t always what you pay. There’s the bag fee, the card surcharge, the “two for” deal that only works if you buy two. Loans work the same way. The one number that cuts through all of it is the total cost of finance: every dollar you pay to borrow, beyond the dollars you borrowed.

How do you calculate total cost of finance?

Here’s the basic formula:

Total cost of finance = total of all scheduled repayments + fees not already included in those repayments − amount borrowed

To find the total of scheduled repayments, multiply the repayment amount by the number of repayments. A loan with 24 monthly repayments of $5,000 has total repayments of $120,000.

Fees to add, if they aren’t already rolled into the repayments, include:

• establishment or application fees;
• broker fees;
• legal and valuation costs you pay as a condition of the loan;
• monthly or annual account fees (multiply by the number of months or years);
• line or facility fees; and
• PPSR registration or documentation fees.

How does cost per $1,000 borrowed work?

Once you’ve got the total cost, divide by the amount borrowed and multiply by 1,000. That tells you what each $1,000 of borrowing costs.

	Offer 1	Offer 2
Amount borrowed	$100,000	$140,000
Total repayments	$122,000	$167,000
Separate fees	$2,500	$1,200
Total cost of finance	$24,500	$28,200
Cost per $1,000 borrowed	$245	$201

Illustrative figures. Offer 2 costs more in total because it’s a bigger loan, but less per $1,000 borrowed. If you genuinely need the larger amount, it’s the better buy on cost.

Our offer comparer does these sums for up to three offers and highlights the cheapest on each measure.

How do fees deducted upfront change the picture?

Fees taken from the advance hit you twice. They’re part of the cost, and they reduce the money you actually receive. If you borrow $100,000 and $4,000 of fees are deducted, you get $96,000 but repay as though you’d received $100,000. Always note money in hand alongside cost. If money in hand falls short of what you need, you may have to borrow more, which adds cost again.

What about different loan terms?

Longer terms usually mean lower repayments but more paid in total. Shorter terms mean higher repayments but less paid overall. Neither is automatically better. Three ways to compare sensibly:

1. Look at average monthly outlay to test the loan against your cash flow.
2. Ask lenders to quote the same term if you’re comparing like for like.
3. Compare at your realistic exit point. If you plan to repay in 12 months, work out what each loan would cost by month 12, including any early repayment fee.

That third method often changes the answer. A loan with a low running cost but a heavy exit fee can be the dearest choice for a short-term need. Our page on early repayment and exit costs goes into the details.

Want a real offer to run the numbers on? Start a 60-second enquiry, with no credit check to ask.

What isn’t captured in the total cost?

The dollar figure is essential but not the whole story. Keep these alongside it:

• Security: a cheaper loan secured over your home carries a different risk from a dearer unsecured one.
• Guarantees: whether you, your spouse or a family trust is on the hook.
• Repayment rhythm: daily or weekly debits can strain cash flow even if the total is lower.
• Covenants and reporting: conditions that could trigger default.
• Speed: a cheaper loan that arrives after the opportunity has gone isn’t cheaper.

business.govt.nz suggests modelling repayments into your cash-flow projections before you commit. That’s sound advice: a loan that’s cheap on paper but leaves you short every month isn’t good value.

A worked example from start to finish

Illustrative example. A Whanganui bakery needs about $50,000 for a new deck oven and a shopfront refresh. Three offers arrive:

• Offer A: $50,000 over 36 months, monthly repayments of $1,720, $950 establishment fee paid separately, $10 monthly account fee. Total repayments $61,920. Fees $950 + $360 = $1,310. Total cost $13,230. Cost per $1,000: $265.
• Offer B: $50,000 over 12 months, weekly repayments of $1,110 (52 repayments), $2,500 fee deducted from the advance. Total repayments $57,720. Total cost $10,220. Cost per $1,000: $204. Money in hand $47,500.
• Offer C: $55,000 over 48 months secured by a second mortgage, monthly repayments of $1,490, $3,200 in fees and legal costs. Total repayments $71,520. Total cost $19,720. Cost per $1,000: $359.

Offer B is cheapest per dollar but needs $1,110 every week and delivers $2,500 less. Offer A costs a little more but suits a monthly cash cycle and gives the full $50,000. Offer C is the dearest and puts property on the line. The bakery picks A.

Ready to put real numbers in?

If you’d like a properly matched offer to calculate, tell us what you need. There’s no credit check when you enquire, and we won’t scatter your details across the market; a real person looks at your situation and comes back to you. Please give accurate figures on the form so the offer we help you find is one worth the arithmetic. See if you qualify.