Quick answer
Total cost of finance is every dollar you pay on top of the amount borrowed, over the time you expect to keep the loan: interest or loan cost, establishment fees, valuation and legal costs, account or line fees, discharge fees and any early payout costs. Comparing offers on this single dollar figure, over the same term and the same expected payout date, is the cleanest like-for-like test.
Key points
- Add the loan cost and every fee into one dollar figure
- Compare offers over the same term and the same expected payout date
- Check what you actually receive after fees are deducted
- Early payout terms can flip which offer is cheaper
Here’s a confession from the business lending world: headline rates are the least useful number on a loan offer. They leave out fees, they don’t care how long you keep the loan, and they behave differently depending on the repayment style. That’s why we never publish rates, and why we ask everyone to compare dollars.
This guide shows you how to turn any offer into one honest number.
What goes into the total cost of finance?
Everything you pay because of the loan, on top of the amount you borrow:
| Item | Usually | Include? |
|---|---|---|
| Interest or loan cost over the term | Every loan | Yes |
| Application or establishment fee | Most loans | Yes |
| Valuation | Secured loans | Yes |
| Legal and documentation | Secured or large loans | Yes |
| Mortgage or caveat registration | Secured loans | Yes |
| Monthly account or line fees | Some loans | Yes, times the number of months |
| Broker or referral fees payable by you | Some arrangements | Yes |
| Discharge fee | Secured loans | Yes |
| Early payout or break costs | If you expect to repay early | Yes, at your expected payout date |
| Dishonour and default fees | Only if things go wrong | No, but know them |
Step 1: Get every offer in writing
Ask each lender for:
- the amount you’ll actually receive after any fees taken from the loan;
- the total repayable over the full term;
- a list of every fee, when it’s charged and whether it’s refundable;
- the payout figure if you repay at a specific earlier date.
Step 2: Line them up over the same term
Compare apples with apples. If one offer is 12 months and another 24, either get both quoted over the same term or compare them at the date you actually expect to repay.
Worked example (illustrative)
Two invented offers for a $200,000 loan, both over 24 months:
| Offer A | Offer B | |
|---|---|---|
| Loan cost over 24 months | $44,000 | $48,000 |
| Establishment fee (taken from the loan) | $6,000 | $2,000 |
| Valuation and legal | $3,500 | $1,500 |
| Monthly fee × 24 | $2,400 | $0 |
| Discharge fee | $600 | $350 |
| Total cost of finance | $56,500 | $51,850 |
| Amount actually received | $194,000 | $198,000 |
| Monthly repayment (spread evenly) | about $10,688 | about $10,494 |
Offer A has the lower loan cost. Offer B is cheaper overall by $4,650 and puts $4,000 more in your account on day one.
Holding two offers and a headache? Our experts compare these every day. Start step 1 in 60 seconds. No credit check to enquire.
Step 3: Test the early payout
Plenty of business loans are repaid early: a big contract pays, a property sells, a refinance comes through. Early payout terms can flip the result.
Suppose you expect to repay at month 12:
| Offer A | Offer B | |
|---|---|---|
| Loan cost to month 12 | $22,000 | $24,000 |
| Upfront and monthly fees to month 12 | $10,700 | $3,500 |
| Discharge fee | $600 | $350 |
| Early payout cost | $0 | $6,000 (minimum cost) |
| Total at month 12 | $33,300 | $33,850 |
Now Offer A edges ahead, because Offer B’s minimum cost kicks in. If you’re likely to repay early, this test matters as much as the full-term comparison.
Step 4: Translate it into repayments
The total cost tells you what the loan costs. The repayment tells you whether you can live with it. Put each offer through the 1-2-3 Loan Repayment Planner, check the share of turnover, then run the repayment comfort test against your slowest month.
Watch for these traps
- Fees deducted from the loan. You pay costs on money you never received.
- Minimum costs. Some short-term loans charge a set minimum however early you finish.
- Monthly fees on long terms. Small amounts add up.
- Daily repayments. They can make a loan feel cheaper than it is, because each debit is small.
- Repayment style. A low repayment with principal due at the end isn’t cheaper. It just shifts the timing.
Our page on business loan fees explains each charge in detail.
Who protects you?
ASIC says unfair contract term protections can cover small businesses with fewer than 100 employees or turnover under $10 million, for financial product contracts with an upfront price of $5 million or less. ASIC also notes that lenders who only provide commercial loans don’t need a credit licence and aren’t required to be AFCA members. Ask about dispute resolution, and get legal advice on large or secured loans.
The one-line rule
Compare the total dollars you’ll pay, over the time you’ll actually keep the loan, and the dollars you’ll actually receive. Everything else is marketing.
How repayment style changes the dollars
Two loans with the same cost can feel completely different depending on how they’re repaid. Invented example, $200,000 over 12 months, total cost of finance $26,000:
| Style | Monthly repayment | At the end | Total paid |
|---|---|---|---|
| Spread evenly | about $18,833 | Nothing owing | $226,000 |
| Cost during term, principal at the end | about $2,167 | $200,000 due | $226,000 |
The total is identical. The second style just moves the principal to the end. It isn’t cheaper, it’s differently timed, and it only works if you have a genuine exit. Toggle between the two in the repayment planner.
Comparing offers with different terms
If one lender offers 12 months and another 24, a simple trick helps: compare the cost per month of keeping the money. Divide each total cost of finance by the number of months. Then ask which term actually suits the purpose. Paying a little more per month for a term that matches how the money earns is often better value than a cheaper short term that squeezes cash flow.
Myth or reality: comparing loans
“The lowest repayment is the best deal.” It may just be the longest term or the one with principal due at the end.
“Fees are minor, so I can ignore them.” On short terms especially, fees can make up a large share of the total cost.
“A broker’s comparison covers everything.” It should, but ask for the total cost of finance for each option, in dollars, in writing.
A comparison template you can copy
For each offer, write down: amount borrowed, amount received, term, repayment amount and frequency, loan cost, every fee, payout cost at your expected repayment date, and the total. Put the offers in columns side by side. The right choice usually jumps out.
Questions to ask every lender
- What’s the total I’ll repay over the full term, and how much of that is on top of what I borrow?
- Which fees are taken from the loan amount, and how much will I actually receive?
- What would it cost to repay at month 6, and at month 12?
- Are there ongoing fees, and how often are they charged?
- What happens, and what does it cost, if a repayment fails?
- Is the lender a member of AFCA?
Ask all six in writing. Any lender who won’t answer clearly is telling you something.
When a pricier loan is the better choice
The cheapest total isn’t automatically the right loan. A slightly dearer offer can win if it matches your cash flow better, allows early repayment without a minimum cost, settles in time for a deadline that matters, or avoids putting the family home on the line. Use the total cost of finance to see the trade-off clearly, then decide what that difference in dollars is worth to you.
Bring us your numbers
If you’ve got an offer you’re unsure about, or you’d like options to compare against, we’re happy to walk through the dollars.
Begin with a 60-second enquiry. There’s no credit check to ask, we don’t throw your details at a pile of lenders, and a real expert calls you. Please be accurate on the form about the amount, purpose and how long you expect to keep the loan. That’s what lets us compare offers on a truly level field.
Frequently asked questions
What is the total cost of finance?
It's the total amount you'll pay over the life of the loan on top of the money you borrow, including the loan's interest or cost and every fee and charge. Expressed in dollars, it's the easiest way to compare offers.
Why not just compare interest rates?
Rates leave out fees, and different terms and repayment styles change the dollars you pay. Two offers with similar rates can cost very different amounts once fees and term are included.
How do I get the total cost from a lender?
Ask: 'What is the total I'll repay over the full term, and how much of that is on top of the amount I borrow?' Then ask the same for repaying at a specific earlier date.
Should I include broker or referral fees?
Yes. If any fee is payable by you in connection with the loan, include it. The point is to capture everything that leaves your account because of this loan.
What protections apply to small business loan contracts?
ASIC says unfair contract term protections can apply to small businesses with fewer than 100 employees or turnover under $10 million, for financial product contracts with an upfront price of $5 million or less. Read the contract and get advice on large or secured loans.