Add-On, Balance, and Precomputed Interest
Compare precomputed add-on finance charges with the adjusted balance method used for periodic open-end interest.
Compare conditional deferred interest, charges withheld in advance, precomputed loan interest, and open-end balance methods.
Interest can be delayed, withheld from proceeds, established for an entire term, or calculated from a defined billing-cycle balance. Those methods sound similar because each changes when a finance charge appears, but they produce different cash flows and comparison problems.
| Method | Core question | Typical setting |
|---|---|---|
| Deferred Interest | Is accrued promotional interest waived only if the balance is paid in full by a deadline? | Retail and credit-card promotions |
| Discounted Loan | Is interest deducted before loan proceeds are delivered? | Single-payment and other discount-interest credit |
| Precomputed Interest | Is the scheduled finance charge calculated for the term at origination? | Closed-end installment lending |
| Adjusted Balance Method | What billing-cycle balance receives the periodic rate? | Open-end credit |
Deferred and Discounted Interest separates a conditional future charge from interest withheld immediately. Deferred interest can disappear when promotional conditions are satisfied; discount interest reduces the cash advanced at origination.
Add-On, Balance, and Precomputed Interest separates closed-end scheduled finance charges from an open-end billing balance method. Precomputed interest determines a term-level charge, while adjusted balance identifies the balance used for one periodic calculation.
Use the contract and required disclosures to identify actual proceeds, amount financed, finance charge, APR, payment timing, balance method, promotional deadline, and early-payoff treatment. Equal payments or marketing phrases do not prove which interest method applies.
These pages explain financial mechanics and U.S. disclosure concepts for education. Product rules and legal requirements vary by transaction and jurisdiction.
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Compare precomputed add-on finance charges with the adjusted balance method used for periodic open-end interest.
Distinguish interest accrued conditionally during a promotion from interest deducted from loan proceeds in advance.