DEFINITION of 'Cumulative Interest'

The sum of all interest payments made on a loan over a certain time period. On an amortizing loan, cumulative interest will increase at a decreasing rate, as each subsequent periodic payment on the loan is a higher percentage principal and a lower percentage interest.

BREAKING DOWN 'Cumulative Interest'

Cumulative interest is sometimes used as a measure of loan economics to determine which loan is most economical. However, cumulative interest alone does not account for other important factors such as initial loan costs (if those costs are paid out of pocket as opposed to being rolled into the loan's balance) and the time value of money (different rates of interest over the life of different loans can lead to savings early in the life of one loan that can offset higher interest rates later in the life of that loan).

RELATED TERMS
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  3. Amortization Schedule

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