ohn has just borrowed an amount of K5,000 to pay his school fees. The loan is to be repaid in equal installments at the end of each of the next 3 years and the interest rate is 15%. John is interested to know the repayment implications on this loan in terms of the total amount that will be paid on the loan and the breakdown between the principal amount and interest payments over th

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.