How this instrument works
Total interest paid over the loan is the gap between what leaves your account and what you actually borrowed: every payment added up, minus the principal. It answers a different question than the monthly payment does. Two loans can carry the identical Monthly payment and still cost very different amounts to carry, if one runs a shorter term at a lower rate and the other stretches the same balance across more months — the payment alone hides that gap, and this figure exposes it.
The arithmetic behind it is not principal times rate times years, even though that guess feels natural. An amortized loan charges interest only on the balance still owed each month, and that balance falls a little with every payment, so the later months contribute far less interest than the earlier ones. Some financing agreements skip that shrinking-balance logic on purpose: add-on interest, still written into some subprime and buy-here-pay-here contracts, multiplies the original principal by the rate and by the number of years and charges that fixed sum regardless of how much balance remains, which produces a materially larger total interest figure than an amortized loan quoting the same headline percentage.
This figure also gives a fair way to weigh a manufacturer's promotional financing against a cash rebate: run the rebate-reduced amount through this sheet at the credit union's market rate, and compare the resulting Total interest paid over the loan directly against the rebate you would give up by taking 0% instead. The sheet prices principal and interest only — it leaves out sales tax, registration, and any gap insurance or service contract a finance office might bundle into the payment, and it assumes every payment lands on schedule with none added or skipped.
- Enter the balance you're financing under Loan amount, $ — the amount owed after any down payment or trade-in, not the sticker price.
- Set the lender's quoted rate under Annual interest rate, %.
- Choose the repayment length in Loan term, months — 60 for five years, 72 for six.
- Read Monthly payment for the fixed installment, then check Total interest paid over the loan for what carrying that balance actually costs.
- Change the rate or term alone and watch Total interest paid over the loan move independently of the payment shown above it.
Worked example — carrying a $25,000 balance at 6%
Finance $25,000 under Loan amount, $ at 6% under Annual interest rate, % over 60 months under Loan term, months, five years. The monthly rate comes to 0.5%, and compounding it across sixty payments fixes Monthly payment at $483.32, the exact figure a lender's contract would print.
Sixty payments of $483.32 add up to $28,999.20 handed over across the life of the loan. Take away the $25,000 that was actually borrowed and Total interest paid over the loan lands at $3,999.20 — sixteen cents on top of every dollar borrowed, and the single number worth setting beside a rebate, a competing lender's offer, or a shorter term before signing anything.
Questions
Why compare loans on total interest instead of the monthly payment?
Because the payment alone can mislead: a longer term or a rolled-in fee can produce two offers with a nearly identical Monthly payment while one quietly costs thousands more to carry. Total interest paid over the loan collapses rate and term into a single dollar figure, so two offers with different structures can be ranked directly against each other.
What is add-on interest, and why can it cost more than this sheet shows?
Add-on interest charges the full original principal by the rate and the number of years up front, rather than charging interest only on the balance still owed each month. Some subprime and buy-here-pay-here contracts still price loans this way; for the same quoted rate it produces a noticeably larger total finance charge than the amortized formula this instrument uses.
Is a 0% manufacturer loan always cheaper than taking the rebate?
Not automatically. Financing the rebate-reduced price at a credit union's market rate can still beat 0% once the forfeited rebate is counted as a cost. Run both numbers here: the market-rate loan's Total interest paid over the loan against the dollar rebate given up, and take whichever total is smaller.
Does paying extra each month reduce total interest paid over the loan?
Yes — an extra dollar toward the balance stops next month's interest from being charged on it, so a steady overpayment lowers the true total below what this sheet shows for the scheduled term alone. This instrument prices the contractual schedule only; approximate an overpayment plan by rerunning it with a shorter Loan term, months.
Does total interest include tax, registration, or add-on products?
No, deliberately. This figure prices principal and interest alone; sales tax, title and registration fees, and bundled products like gap insurance or an extended service contract are excluded unless their cost is already folded into Loan amount, $ before you enter it. Adding rough guesses for those items would make an exact number rough.
References
- Consumer Financial Protection Bureau — Auto loans resources
- Federal Reserve — Consumer Credit statistical release (G.19)
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.