Everyday money · General financial education

Borrowing costs

Borrowed money usually costs interest. A small monthly payment can still mean high total costs.

In more detail

Look beyond the monthly payment at the term, interest rate and fees. A longer term can lower payments while increasing total interest.

Background

With an annuity (level-payment) loan at an unchanged rate, the payment stays constant. As the balance declines, interest falls and principal repayment rises. Additional fees and variable rates require separate modelling.

An example

Compare the same loan amount over 3 and 6 years. Observe monthly payments and total interest.

A common misconception

The small payment makes the loan cheap.

The payment alone hides term, interest and fees. Longer can mean more total interest.

Source: CFPB · Auto loans. Last reviewed: 2026-11-01. Editorially reviewed on 2026-11-01. Next review 2027-11-01. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.