1. What is the Cost Finance Calculation?

The Cost Finance calculation determines the additional amount paid when financing a purchase compared to buying it outright. It helps compare the true cost of financing versus paying cash.

2. How Does the Calculator Work?

The calculator uses the Cost Finance formula:

Where:

• \( Total\ Payments \) — Sum of all payments made during financing period
• \( Principal \) — Original purchase price or loan amount

Explanation: The equation shows the total interest and fees paid over the life of the financing.

3. Importance of Cost Finance Calculation

Details: Understanding the true cost of financing helps make informed decisions about purchases and compare different financing options.

4. Using the Calculator

Tips: Enter the total of all payments you'll make (including interest and fees) and the principal amount. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's included in total payments?
A: Include all monthly payments, interest charges, and any additional fees over the entire financing period.

Q2: How does this compare to APR?
A: APR shows the annual rate, while cost finance shows the actual dollar amount you'll pay extra.

Q3: When is financing better than buying?
A: When investment returns exceed financing costs, or when cash flow is more important than total cost.

Q4: Does this include opportunity cost?
A: No, this is a simple dollar calculation. Opportunity cost would require additional analysis.

Q5: Should I always choose the lowest cost finance?
A: Not necessarily - consider payment terms, cash flow needs, and other factors in your decision.