What calculation would you use to determine the total interest paid over the life of a loan?

To determine the total interest paid over the life of a loan, the calculation involves understanding the relationship between the scheduled payments and the interest payments. While scheduled payments encompass both the principal repayment and interest components, the total interest paid can be derived directly by subtracting the interest payments from those scheduled payments.

When making regular payments on a loan, part of each payment goes toward paying down the principal, while another part covers the interest cost based on the outstanding amount of the loan. Therefore, to isolate how much has been paid in interest over the life of the loan, one must calculate the difference between the total scheduled payments made over the life of the loan and the total interest payments contributed during that period. This calculation accurately captures the total interest incurred.

Other methods do not yield the correct total interest. For example, subtracting the principal from total payments measures the overall repayment but does not specify the interest component alone. Hence, focusing on the difference between scheduled and interest payments offers a clear picture of the interest incurred throughout the term of the loan.