When calculating effective borrowing cost with prepayment, what additional information is necessary?

To accurately calculate the effective borrowing cost when factoring in prepayment, it is essential to know the remaining balance of the loan. This information allows you to determine how much principal is still owed when the prepayment is made.

Prepayments can significantly alter the total interest paid over the life of the loan and the overall cost of borrowing. By knowing the remaining balance, you can assess the impact of making an additional payment towards the principal. This can help in recalculating the effective interest costs, as the principal amounts will change due to the prepayment, leading to changes in future interest calculations.

The other elements such as loan amount, interest rate, and monthly payment do play critical roles in calculating loan costs but do not directly provide the necessary adjustments for prepayment scenarios. Without understanding how much principal is outstanding at the time of prepayment, you cannot accurately reflect the financial implications of that prepayment on your effective borrowing cost.