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Business Definition for: add-on interest
add-on interest

finance charges computed by adding the interest payable to the full amount of loan principal. The add-on interest is added to the original principal amount, and becomes a part of the face amount of the promissory note.

Computing interest due under the add-on interest method is fairly simple. The loan principal is divided into a number of fixed payments, and each payment is multiplied by the finance charge, to calculate the interest cost to the borrower: Add-On Interest = Principal × Rate × Number of Months in the loan/12.

See also Rule of the 78's , amortization , simple interest , discount
add-on interest

interest that is added to the principal of a loan. The amount of interest for all years is computed on the original amount borrowed, so the stated rate is much lower than the annual percentage rate (APR) , which is required to be disclosed by federal law.

add-on interest

interest that is added to the principal of a loan. The amount of interest for all years is computed on the original amount borrowed.

Example: Abel borrows $1,000 at 8% add-on interest for 4 years. Total interest is $320 (8% of $1,000 for 4 years). Abel will repay the $1,320 total in equal monthly installments.

Copyright c 2006, 2000, 1997, 1993, 1990 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2004, 2000, 1997, 1993, 1987, 1984 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.

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