Discount Interest
Discount interest is another method used to calculate interest for
an installment loan.
Interest and other fees are deducted from the amount borrowed before
you receive the original amount of the loan.
Assume that you borrow $1000.00 at 5% for 1 year. The interest charged
is $50.00 and if there are no other charges or fees, you will receive
$950.00 from the lender. This is the amount that you will repay. The
interest has been paid “up front.”