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    Question ID:   4303         Current Version: 1
Question: What is the discount method of calculating interest?
Category: Business & Finance > Personal Finance
Keywords: discount method, calculate, interest, rate
Type: what
Rating:(0 ratings)    Views: 377    Discussions: 0   In Watch Lists: 1  

 
    Answer:
Under the discount method, the interest that will be due is calculated and withheld from the borrower when the loan is made. For example, someone who borrows $1,000 for a year at a 10% interest rate would actually receive just $900 ($1,000 minus 10% of $1,000, or $100), and then pay back $1,000 a year later. The effective interest rate would thus exceed 11% ($100 divided by the $900 that the borrower had the use of during the year).
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