Definition: Interest calculated on the original loan principal for the entire stated term and added to the amount repaid in installments.
Example
A $10,000 one-year loan at 8% add-on interest has $800 added interest before the total is divided into payments.
Keep the distinction clear
Because principal is repaid during the term, the effective borrowing rate is higher than the stated add-on rate. Do not equate that stated rate with APR.
Related terms
Interest · Annual Percentage Rate (APR) · Principal
Keep studying
References: California DRE: glossary
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