How do you calculate the total interest percentage?

How do you calculate the total interest percentage?

• A. Finance charge ÷ loan amount
• B. Loan amount ÷ finance charge
• C. Finance charge × loan amount
• D. Interest rate ÷ term

Answer: (A)

Total Interest Percentage shows how much of the funded loan amount is consumed by finance charges. To find it, divide the total finance charges by the loan amount financed, then multiply by 100 to express it as a percentage. For example, if the finance charges total $2,000 on a loan amount of $20,000, the TIP is (2,000 / 20,000) × 100 = 10%. This metric helps you compare the cost of borrowing across lenders because it focuses on the proportion of the loan that goes to charges, not just the interest rate or payment terms.

Total Interest Percentage shows how much of the funded loan amount is consumed by finance charges. To find it, divide the total finance charges by the loan amount financed, then multiply by 100 to express it as a percentage. For example, if the finance charges total $2,000 on a loan amount of $20,000, the TIP is (2,000 / 20,000) × 100 = 10%. This metric helps you compare the cost of borrowing across lenders because it focuses on the proportion of the loan that goes to charges, not just the interest rate or payment terms.