Add-On Interest

Add-on interest is a type of interest that is calculated and added to the principal amount of a loan at the time of origination. This means that the borrower pays interest on the interest that has already been accrued, which can significantly increase the cost of the loan. Add-on interest is often used for short-term loans, such as car loans or personal loans, and is typically charged at a higher rate than simple interest.

There are a few key things to keep in mind when considering an add-on interest loan. First, the total cost of the loan will be higher than with a simple interest loan, since you will be paying interest on the interest. Second, the monthly payments will be higher in the early years of the loan, since most of the payment will be going towards interest. Third, if you make a late payment, you may be charged a penalty fee, which will also increase the cost of the loan.

If you are considering an add-on interest loan, it is important to compare the total cost of the loan with other types of loans, such as simple interest loans or loans with a fixed interest rate. You should also make sure that you can afford the monthly payments, even if they are higher in the early years of the loan.

Here are some additional details about add-on interest:

Add-on interest is also known as front-end interest or simple interest.
The interest rate for an add-on interest loan is typically higher than the rate for a simple interest loan.
Add-on interest loans are often used for short-term loans, such as car loans or personal loans.
The total cost of an add-on interest loan will be higher than the cost of a simple interest loan.
The monthly payments for an add-on interest loan will be higher in the early years of the loan.
If you make a late payment on an add-on interest loan, you may be charged a penalty fee.