Also known as an all-included cost, an all-in cost is a term used to describe the total cost associated with a financial transaction. This figure represents both the stated costs as well as any implied costs that may have to do with the completion of that transaction. The range of charges associated with the all-in cost will vary somewhat, based on the type of financial transaction involved.
In lending situations, an all-in cost is likely to include both the principal amount that is borrowed, plus payments on the interest applied to the loan. Other charges, such as processing fees, commissions, origination fees, and any other fees that may be incurred at any point during the creation and completion of the loan arrangement may also be involved in the overall or total cost. It is not unusual for a lending institution to express these total transaction costs as a percentage of the overall face value of the loan.
Depending on local tradition, an all-in cost is sometimes referred to as the borrower’s total cost of credit. This term calls attention to the fact that the additional costs associated with obtaining a loan are ultimately absorbed by the borrower or debtor, and may be assessed either during the early stages of the loan negotiation or at some point during the life of the loan. The terms of the loan agreement will identify each of these expressed and implied charges, the events that must take place in order for a given charge to be applied to the loan account, and how those fees or charges affect the total amount due before the settlement or payoff date of the loan.
With a certificate of deposit (CD), the all-in cost will focus on the interest that is earned on the instrument and paid to the depositor. Along with that interest, the total costs will also allow for the premium associated with the deposit insurance covering the asset, as well as the opportunity cost that is created by the reserve requirements which the institution must comply with in order to operate. The collection of associated costs is usually broken down so that it is possible to identify each element that goes into the all-in cost.
Consumers can benefit from understanding the nature of all-in cost, and using that knowledge to compare the terms offered by different lenders. Since the total cost makes it easier to determine what type of charges are incurred throughout the life of the loan, it is possible to identify which lender or lenders offers more favorable terms and allows the applicant to receive the desired loan amount while incurring the lowest amount of different types of direct and indirect charges. Scrutinizing the all-in cost associated with different loan offers can lead to substantial savings, especially with loans such as mortgages and many high-dollar business loans.
