Add-on interest



One method of calculating installment-loan finance charges, with interest calculated on the full amount borrowed over the life of the loan.  Lenders are required to quote rates in terms of annual interest, so you can compare the true cost of  this type of financing with simple interest financing, which computes interest only on the outstanding balance.  An eight percent add on interest loan for 36 months is equivalent to annual simple interest of 14.54%.