Free Loan ROI Calculator (Is Borrowing Worth It?)
Before you borrow to invest, this tool tells you whether the expected return actually beats the cost of the loan. It nets out total interest from the projected revenue and gives you a clean ROI percentage.
Results
Disclaimer: This calculator provides estimates only and does not constitute financial advice. Actual loan terms may vary by lender.
What the Loan ROI Calculator does
Loan ROI measures whether the return generated by a loan-funded investment exceeds the total interest cost of the loan itself. It converts a borrowing decision into a single percentage that can be compared against the business's normal cost of capital.
Methodology and formula
Net ROI (%) = [(Expected Return - Total Loan Interest) / Loan Amount] x 100, where Expected Return is the net contribution generated over the loan tenure.
Worked example
- Inputs
- Loan amount 30,000 at 10% for 3 years (total interest about 4,860); expected net contribution from the funded equipment 12,000.
- Result
- Net ROI = [(12,000 - 4,860) / 30,000] x 100 = about 23.8%.
A 23.8% net ROI comfortably clears the 10% loan rate, so borrowing to fund the equipment makes financial sense as long as the revenue estimate holds up.
When to use this tool
Use this before taking on debt to fund a specific investment. Use the Loan Refinance Calculator instead if you already have the loan and are deciding whether to switch lenders, or the Working Capital Calculator to check overall liquidity first.
About the Loan ROI Calculator
The formula
Net ROI (%) = ((Expected Return − Loan Cost) / Loan Amount) × 100, where Loan Cost is total interest paid over the tenure. A positive ROI means the investment beats the loan; a negative ROI means you'd be borrowing to lose money.
Getting the return estimate right
The most common mistake is using gross revenue as the 'return'. Use net contribution — revenue minus the variable costs of delivering it. Otherwise the tool overstates your ROI and the loan looks safer than it is.
The right benchmark
A loan-funded project should beat your business's normal cost of capital by a comfortable margin (typically 5%+ over the loan rate). Anything closer is not worth the debt-service risk.
Frequently asked questions
What should I enter as 'expected return'?
What if my ROI comes out negative?
Does this include taxes?
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