The effective interest rate on a bank loan depends on whether interest is paid when the loan matures or in advance.

Question

Quizplus · Accepted Answer

The timing of interest payments affects the calculation of the effective interest rate. If interest is paid in advance, the loan amount is reduced by the amount of interest, which results in a lower effective interest rate. On the other hand, if interest is paid when the loan matures, the borrower is effectively paying interest on the full loan amount, resulting in a higher effective interest rate.

The Effective Interest Rate on a Bank Loan Depends on Whether