Business Definition for: amount financed
amount financed
credit or advance actually made available to a borrower, repayable according to terms of the loan. It is equal to the loan
principal
less any prepaid finance charges, and does not include payments such as prepaid
discount point
s that are not included in the finance charge.
See also
add-on interest
,
amortization
Related Terms:
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.
gradual reduction of an amount over time. Examples are amortized expenses on limited life intangible assets and deferred charges. Assets with limited life have to be written down over the period benefitted. The amortization entry is to debit amortization expense and credit the intangible asset. However, unlimited life intangibles are subject to an annual impairment test.
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