Total cost of credit
The sum of everything the borrower pays on top of the principal: interest, insurance, arrangement and guarantee fees over the whole term. It is the most telling indicator of a financing's real effort and the best basis to choose between offers. Cutting the term or the insurance often lowers this cost more than shaving the rate.
Key points
- Adds together interest, insurance, arrangement fees and guarantee costs over the full loan term.
- A more relevant indicator than the rate alone for comparing two offers with different structures.
- Shortening the term or reducing insurance often affects total cost more than shaving the rate.
- Mandatory disclosure in the loan offer and the European Standardised Information Sheet (ESIS).
Frequently asked questions
How do you compare the total cost of two offers with different terms?
You need to bring both offers to the same borrowed amount and check the total amount disbursed (capital plus total cost) in each case, bearing in mind that the shorter offer ties up less capital over the same period. A purely absolute comparison of total cost always favours the shorter term; the right trade-off accounts for the impact on monthly cash flow and the alternative return on freed-up capital. The broker builds comparative costed scenarios.
Why does insurance weigh so heavily in total cost?
The insurance premium is charged every month for the full loan term, sometimes calculated on the initial capital rather than the outstanding balance, generating a progressive extra cost. Over a long loan, cumulative premiums can exceed the interest itself. Reducing the insurance rate by a few tenths through delegation can save several thousand euros.
Does total cost of credit change if the borrower makes early repayments?
Yes, an early repayment reduces the outstanding balance and thus future interest, but early-repayment penalties may apply. The net saving depends on those penalties and the remaining term: the earlier the repayment, the higher the interest saving. The broker simulates the break-even point between penalties and interest savings to advise on the opportunity.
In practice
On a €200,000 loan over 20 years, two offers show the same rate at 3.80%: the first includes insurance at 0.40% on initial capital, the second at 0.20% on outstanding balance. The broker calculates the total cost difference exceeds €8,000, making the second offer significantly better despite an identical rate.
Official sources
- The annual percentage rate (APRC) · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr