DEFINITION of 'Interest Cost'

The cumulative sum of the amount of interest paid on a loan by a borrower. This amount should include any points paid to reduce the interest rate on a loan, since points are in effect pre-paid interest. Additionally, any negative points or rebates paid by a lender to a borrower should be subtracted from the interest cost as they are in effect a refund of future interest the borrower will pay on the loan.

BREAKING DOWN 'Interest Cost'

Interest cost is one measure of loan economics. However, other measures such as lender fees and loan closing costs, tax benefits and consequences, principal reduction, and opportunity costs in the form of re-investment rates should also be included in a thorough analysis of loan choices.

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