A company has a $500,000 30 year fixed loan payable at an interest rate of 4% monthly loan payments are set at $2,387.08. for the first month’s payment, the interest portion of the payment is $1,666.67. the entry to record the first months loan payment ( assuming no previous accrual) would include a debit to  cash in the amount of $1666.67 loan payable in the amount of $2,387.08 interest expense for $1666.67 cash in the amount of $ 2,382.08

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.