How does interest rate affect total loan repayment cost?

When interest rates are higher, you pay more over the life of a loan because interest is calculated as a percentage of the outstanding balance. Even a small rate difference can significantly increase total repayment cost, especially on long-term loans like mortgages. For example, a 30-year mortgage at 7% versus 5% on a $300,000 loan can mean paying tens of thousands of dollars more in interest. The relationship is also affected by compounding, where interest accrues on previously accumulated interest. Longer loan terms amplify this effect because you carry the balance longer. Conversely, lower interest rates reduce your monthly payment and total cost, meaning more of each payment goes toward the principal rather than interest charges.