1. What is ROI for Personal Loans?

Return on Investment (ROI) for personal loans measures the percentage return or cost associated with borrowing money. It helps borrowers understand the true cost of their loan relative to the principal amount.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( Total\_payment \) — Sum of all payments (USD)
• \( ROI \) — Return on investment (%)

Explanation: A positive ROI indicates the loan costs more than the principal (interest expense), while a negative ROI would indicate a gain (uncommon with standard loans).

3. Importance of ROI Calculation

Details: Calculating ROI helps borrowers compare different loan options, understand the true cost of borrowing, and make informed financial decisions.

4. Using the Calculator

Tips: Enter the original loan amount (principal) and the total of all payments you'll make (including interest and fees). Both values must be positive numbers in USD.

5. Frequently Asked Questions (FAQ)

Q1: What does a 20% ROI mean for a loan?
A: A 20% ROI means you'll pay 20% more than the principal amount over the life of the loan.

Q2: How is this different from interest rate?
A: ROI considers all payments (including fees) relative to principal, while interest rate only reflects the periodic interest charge.

Q3: Can ROI be negative on a loan?
A: Normally no, unless you're receiving more money than you'll repay (as in some special financing deals).

Q4: Should I look for lowest ROI when borrowing?
A: Yes, a lower ROI means lower total borrowing costs. Compare ROI across loan options.

Q5: Does this account for time value of money?
A: No, this is a simple ROI calculation. For time-adjusted returns, consider calculating IRR instead.