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
5%	$2,108.09	$22,108.09
9%	$3,889.61	$23,889.61
12%	$5,280.38	$25,280.38

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	$22,584.45
Compounded semi-annually	$ 2,617.34	$22,617.34
Compounded quarterly	$ 2,634.11	$22,634.11
Compounded monthly	$ 2,645.52	$22,645.52
Compounded weekly	$ 2,649.90	$22,649.90

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Date modified:: 2023-02-20