What is the true cost of debt

The true cost of debt is the total amount of money that a borrower has to repay to the lender in addition to the principal amount borrowed. It includes all the interest charges, fees, and other costs associated with borrowing the money. The true cost of debt varies depending on the interest rate, loan term, and the borrower’s creditworthiness.

 

For example, if a borrower takes out a $10,000 loan with an interest rate of 5% per year for five years, the total amount of interest paid over the life of the loan would be $2,286. In this case, the true cost of debt would be $12,286 ($10,000 principal + $2,286 interest).

 

It’s important to note that the true cost of debt can have a significant impact on a borrower’s finances and should be carefully considered before taking on any debt.

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