4.2.4 The effect of interest

From: Financial Consumer Agency of Canada

Obviously, the higher the interest rate, the more it will cost to repay your loan. Suppose you take out a $20,000 personal loan to be repaid monthly over four years.

The chart shows the effect of different interest rates.

Interest rate

Total interest paid

Total amount paid










Also, the way the interest is calculated affects the total cost of the loan.

The chart below shows the effect of different methods of calculating interest, using the same $20,000 personal loan, to be repaid at five percent interest over five years.

$20,000 at 5% for 5 years

Total interest paid

Total amount paid

Compounded annually

$ 2,584.45


Compounded semi-annually

$ 2,617.34


Compounded quarterly

$ 2,634.11


Compounded monthly

$ 2,645.52


Compounded weekly

$ 2,649.90


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