What Is an All-In Cost?
An all-in cost consists of each and every cost involved in a financial transaction or business operation. All-in costs can be used to explain the total fees and interest included in a financial transaction, such as with a loan or certificate of deposit (CD), or with a securities trade. By comparing all-in costs, investors and borrowers can more easily and accurately compare net gain potential.
- All-in costs comprise the entire cost of a financial transaction or business operation, including all taxes and fees such as closing costs, origination fees, or commissions.
- Loans and credit card companies present the annual percentage rate (APR) to display the all-in costs as an interest rate.
- Businesses use all-in costs when determining the true cost of a project.
Understanding All-In Costs
The costs associated with an investment can adversely impact an investor's ability to profit, so understanding the all-in costs of a trade, including the spread and commission, is important. In terms of loans, consumers need to understand the true cost of their loans, including closing costs and interest, in order to evaluate both their ability to pay it off and whether the item is worth that expense.
Below, we take a closer look at how all-in costs are put to use in the contexts of borrowing and in business.
Types of All-in Costs
All-in costs, in the context of loans, would also take into account adjustments that come with variable-rate financing. For example, if a borrower takes out a mortgage that includes options for taking advantage of lower interest rates that arise, there may be additional costs that come with having such an option within the terms of the loan. These fees might offset the potential short-term savings when the all-in costs are determined. Such arrangements might be established by lenders who want to attract more business that is lucrative.
While the ability to take on a lower interest rate may appeal to some borrowers, the savings they enjoy on reduced monthly payments could actually result in a net loss. This may be due to the lender charging a number of administrative fees and other costs for processing the loan, as well as a larger fee to serve as collateral on the loan.
As well, student loans can have all-in costs. Beyond the interest rate cost, there’s also origination costs, which is the case with many loans.
Credit cards, like other forms of financing, can also carry service charges that factor into the total all-in costs. Subprime credit cards, for example, bear much higher than the market average interest rates. There may also be fees attached that increase the debt. As the debt becomes more exorbitant, the all-in costs escalate. If a borrower does not accurately assess their credit terms carefully, such all-in costs can mount up to such a point that the borrower cannot afford to cover the interest they owe.
Credit cards often display their interest rate as an annual percentage rate (APR), which is a rate that includes all-in costs, such as fees and other costs, and not just the interest rate. The types of fees included in the APR include closing costs, discounts, rebates, and broker fees.
All-in costs can also be understood from a business perspective in regards to all the expenses and charges related to an operation or service of a company. For example, the all-in costs for a mining company can include unexpected project costs to open a new site, such as covering environmental mitigation requirements.