True Cost of Debt Calculator

What this calculator does

Most loan calculators stop at total interest. This one stacks three components into one figure: interest paid to the lender under standard amortisation, fees entered as a lump sum, and the foregone-investment gap between investing each monthly payment at the opportunity-cost rate and what the lender actually receives. The third component depends on what the borrower would have done with the payment money in the absence of the loan, so it is a theoretical figure rather than a guaranteed loss — the calculator surfaces it to make the comparison visible, not to claim it as a real cash outflow.

How the math works

The monthly payment is computed via standard amortisation: M = P · r · (1+r)^n ÷ ((1+r)^n − 1), where r is the monthly loan rate and n is the term in months. Total paid to the lender is M × n; total interest is total paid minus principal. The investment side runs an annuity at the opportunity-cost rate — FV_invested = M · ((1+r_o)^n − 1) ÷ r_o, where r_o is the monthly opportunity rate. The foregone-investment component is FV_invested − total paid; the layered figure is interest + fees + that gap.

Worked example

Take a 200,000 loan at 6% annual rate over 360 months, with 3,000 in fees, and a 7% opportunity-cost rate. The standard amortising payment is approximately 1,199.10 per month, producing total interest of about 231,677 over the term. Investing 1,199.10 monthly for 360 months at 7% produces a future value of about 1,462,869. Total paid to the lender across the same 360 months is about 431,677. The foregone-investment gap is roughly 1,031,192. Stacked: 231,677 + 3,000 + 1,031,192 ≈ 1,265,868. The interest-only view would have shown 231,677 — the layered figure adds the fees and the gap to surface the full comparison.

What moves the result

Three levers shape the figure. The loan rate sets the size of the interest layer — higher rates make interest a larger share. The opportunity rate sets the size of the foregone-investment gap — when it sits above the loan rate, the gap can dwarf interest over long terms; when it sits below, the gap can be small or negative. The term amplifies both compounding sides simultaneously, but on a 30-year horizon the investment compounding typically outpaces interest accumulation when opportunity exceeds loan rate by more than 1 to 2 percentage points.

What this calculation does not capture

The opportunity-cost component assumes the monthly payment would otherwise have been invested at the entered rate every month for the full term. In practice, the alternative might be spending rather than investing, in which case the gap is theoretical. The investment return is treated as fixed; real returns are stochastic. The calculation excludes tax on investment returns (which would lower FV_invested), tax on loan interest where deductible (which would lower the interest cost), prepayment, missed payments, fees added to principal mid-term, balance transfers, and rate resets on variable-rate loans. The figure is best read as a planning baseline rather than a guaranteed comparison.

Reading the output

The headline figure stacks the three components. The supporting details show interest, fees, and the foregone-investment gap separately so the working is transparent and any single component can be compared against simpler tools. When the opportunity rate equals the loan rate, the gap shrinks toward zero; when it exceeds the loan rate, the gap becomes the dominant component on long-term loans. The figure is not a recommendation to invest rather than borrow — that decision depends on factors the calculator does not model, including risk tolerance and the borrower's actual alternative use of the payment money.