Cost of borrowing

The cost of borrowing is the total expense incurred by a borrower when taking out a loan, like a weary traveler shouldering the weight of their provisions for a long journey. This cost encompasses not only the interest paid on the loan, but also any additional fees, charges, and expenses associated with the borrowing process, such as origination fees, closing costs, or insurance premiums.

Example

When a borrower takes out a mortgage to buy a home, the cost of borrowing includes the interest paid on the loan principal over the loan term, as well as any origination fees, appraisal fees, title insurance, and other closing costs. To minimize the overall cost of borrowing, a borrower may compare different loan offers, negotiate terms and fees with the lender, or seek to improve their credit score to qualify for lower interest rates. By understanding and managing the cost of borrowing, borrowers can make more informed financial decisions and ensure they obtain the most favorable loan terms possible.