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What Does Total Paid on a Loan Mean?

What Does Total Paid on a Loan Mean?

Total paid is the total amount of principal and interest that is paid over the entire term of the loan. This can be determined by taking the monthly payment amount and multiplying it by the number of payments.

As an example, Ken has fulfilled the terms of the installment loan he got to help his daughter pay for her tuition, and the loan is completely paid off. His original loan amount for borrowing money to help her pay for college was $475, but with interest on the loan being $150 at the end of the term, the total paid on the loan with interest ended up being $625.

With only few exceptions, most loans will have a total payment that is higher than the principal because of the interest. Even if the interest rate is lower, that amount paid is still added to the total payment. Borrowers must be aware of these guidelines when they choose how much they need to borrow. This is to avoid them borrowing an amount they can’t afford because they believe that the principal is the final total they will pay altogether.

Financial Terms and Definitions