Interest is added to the amount financed in order to determine total payments under the

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The add-on interest method involves adding the interest to the total amount financed at the beginning of the loan, creating one new lump sum to be paid off over the term of the loan. This is in contrast to the simple interest method, where interest is calculated on the outstanding balance and reduces as the balance is paid down. The discount interest method involves subtracting the interest from the amount financed at the beginning of the loan, and the rule of 78s is a specific method of allocating interest charges over the term of a loan.

Interest Is Added to the Amount Financed in Order to Determine