For a given loan at the same interest rate, the add-on method produces lower finance charges than the discount method.

Question

Quizplus · Accepted Answer

The add-on method calculates the finance charge by adding the interest to the principal, while the discount method calculates the finance charge by subtracting the interest from the principal. Since the add-on method includes the interest in the finance charge, it will always produce a lower finance charge than the discount method.

For a Given Loan at the Same Interest Rate, the Add-On