1. What is Borrowing Cost?

Borrowing cost represents the total interest expense incurred when borrowing money. It's calculated using the simple interest formula that considers the principal amount, interest rate, and time period of the loan.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal amount borrowed ($)
• \( r \) — Annual interest rate (expressed as decimal)
• \( t \) — Time period in years

Explanation: The formula calculates the total interest cost without considering compounding effects, making it suitable for simple interest loans.

3. Importance of Borrowing Cost Calculation

Details: Understanding borrowing costs helps borrowers make informed financial decisions, compare loan options, and plan for interest expenses. It's essential for personal financial management and business loan analysis.

4. Using the Calculator

Tips: Enter the principal amount in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both principal and accumulated interest.

Q2: How do I convert percentage rate to decimal?
A: Divide the percentage by 100. For example, 7.5% becomes 0.075.

Q3: Can I use this for monthly calculations?
A: Yes, convert months to years by dividing by 12. For example, 6 months = 0.5 years.

Q4: Does this include any additional fees?
A: No, this calculates only the interest cost. Additional fees like origination fees or service charges are not included.

Q5: When is simple interest typically used?
A: Simple interest is commonly used for short-term loans, car loans, and some personal loans where interest doesn't compound.