Without add-ons
25% · 36 mo
- Monthly payment
- $198.80
- Cost of borrowing
- $2,156.77
- Rate on your cash
- 25.00%
Lowest cost
Tool · Add-ons
What do loan add-ons really cost?
Installment loans often come with credit life, disability or unemployment insurance, or a membership plan. The premium is usually added to the loan, so you pay interest on it too, yet the APR on your disclosure does not move. Enter the loan and each add-on to see the full cost and the true rate on the money you actually receive.
Result
$5,000.00 at 25% for 36 months, with $400.00 of add-ons added to the loan.
These add-ons cost $572.54 over the loan.$400.00 in premiums plus $172.54 in interest on them. Your payment rises by $15.90, and the true rate on the $5,000.00 you receive is 30.89%, while the disclosed APR stays 25%.
With add-ons as offered
$400.00 added to the loan
- Monthly payment
- $214.70
- Cost of borrowing
- $2,729.31
- Rate on your cash
- 30.89%
+$572.54 more
Disclosed APR still shows 25%
These add-ons cost $572.54 over the loan. On $5,000.00 at 25% over 36 months, $400.00 of add-ons added to the loan raise the cost of borrowing from $2,156.77 to $2,729.31. The disclosed APR stays 25%; the rate on the cash you actually receive is 30.89%.
| Line | Without add-onsLowest cost25% · 36 mo | With add-ons as offered$400.00 added to the loan |
|---|---|---|
| Cash you receive | $5,000.00 | $5,000.00 |
| Amount financed | $5,000.00 | $5,400.00 |
| Add-on premiums | $0.00 | $400.00 |
| Monthly payment | $198.80 | $214.70 |
| Total of payments | $7,156.77 | $7,729.31 |
| Interest charged | $2,156.77 | $2,329.31 |
| Cost of borrowing | $2,156.77 | $2,729.31 |
| APR as disclosed | 25% | 25% |
| Rate on the cash you receive | 25.00% | 30.89% |
Each add-on over the life of the loan
- Credit life insurance: $180.00 premium, $257.64 with the interest charged on it
- Credit disability insurance: $220.00 premium, $314.90 with the interest charged on it
Show the math
Without add-ons Amount financed = $5,000.00; monthly rate r = 25% ÷ 12 = 2.083333% Payment = amount × r × (1+r)^n ÷ ((1+r)^n − 1) = $198.80 Total of payments = 36 × 198.7991 = $7,156.77; cost of borrowing = $2,156.77 With add-ons (premiums added to the loan) Credit life insurance $180.00 Credit disability insurance $220.00 Premiums = $400.00 Amount financed = $5,400.00; cash you receive = $5,000.00 Payment = $214.70 (+$15.90 a month) Total of payments = $7,729.31; cost of borrowing = $7,729.31 − $5,000.00 = $2,729.31 Add-on cost = $2,729.31 − $2,156.77 = $572.54 (premiums $400.00 + interest on them $172.54) APR as disclosed = 25% Regulation Z leaves voluntary, disclosed, signed-for insurance out of the finance charge Rate on your cash = the annual rate at which 36 payments of $214.70 are worth $5,000.00 today = 30.89%
Questions to ask your lender
- Is the credit life insurance and credit disability insurance optional? If I decline it, will my rate, amount or approval change?
- Can I cancel it after signing, and is there a period in which I get a full refund?
- If I pay the loan off early or cancel the cover, how is the unearned premium refunded: pro rata, or by the Rule of 78s?
- Is the premium a single amount added to my loan, or charged monthly? I used $400.00 as a single premium.
- What exactly does each policy pay, for how long, and what does it exclude? Do I already have similar cover through work, my own life insurance, or my auto insurer?
- What would the APR be if the premium were counted in the finance charge? I estimate 30.89% on the cash I receive.
Assumptions and limits
- Each add-on is a single premium paid at signing and added to the amount financed, so it is repaid with interest. Plans billed monthly are not modelled.
- The APR shown on the disclosure leaves the premium out, as Regulation Z allows for insurance that is voluntary, disclosed in writing and signed for. The Military Lending Act rate for active-duty servicemembers does count it.
- The rate on your cash is the annual rate at which your payments equal the money you actually receive, the same method the offer comparison uses.
- Refunds of unearned premium on early payoff or cancellation are not included. If you cancel or pay off early, part of the premium usually comes back, which lowers the cost.
- The tool shows cost only. Whether the cover is worth having depends on what it pays and what cover you already have.
Learn more
Related
Comparing offers with different fees? Compare them on the same cash in hand. On a precomputed loan, see your payoff under the Rule of 78s.