financing contract that adds interest into interest and makes use of returns to pay interest. It causes the interest rate to be greater and needs to be agreed to at contract signing.
Lending arrangement by which (1) the sum total interest within the loan's entire length of time is included with the main during signing the loan documents, and (2) a set part of every loan payment installment goes towards interest repayment. Since this arrangement doesn't take into account the lowering principal balance, it leads to an actual (efficient) rate of interest that is higher versus quoted interest. Actually, much more frequent the repayment installments, the greater the effective interest rate. When you look at the contemporary legal financing training, the effective rate of interest (known as 'annual portion rate' or APR) must certanly be disclosed because of the lender during the time that loan application is acknowledged.