Add-on Interest Law and Legal Definition

Add on interest is a method of charging interest. Interest payable is determined at the beginning of a loan. In add on method interest, interest amount is added on the total amount borrowed and added on to the principal of a debt. Then each payment is deducted from the total amount. The sum of the interest and principal is the amount repayable upon maturity. The interest is made payable as part of the debt. Usually interest is paid in equal periodic installments. The borrower signs a note promising to repay principal plus interest. However, only the principal is initially disbursed to the borrower. In add on interest method the borrower must pay more than the loan amount.