The effective interest rate for a discount loan is greater than the loan's stated interest rate.

Question

Quizplus · Accepted Answer

This is because the borrower receives less money upfront due to the discount (which is deducted from the loan amount), but is still required to repay the full amount of the loan plus interest. Therefore, the effective interest rate includes the reduction from the discount, which results in a higher rate than the stated interest rate.

The Effective Interest Rate for a Discount Loan Is Greater