Borrowing interest add-on method and real annual rate method

Calculate the interest amount of the loan received by cashing by the real annual rate method or the add-on method. An add-on is an interest calculation method that comes from add on, which means “add-on,” and features easy-to-understand calculations and low apparent interest rates. Currently, add-on methods are rarely seen in consumer finance because the law requires that only the real annual rate be displayed. The add-on method calculates from the initial borrowing amount, whereas the real annual rate is calculated from the borrowing principal at that time. If you borrow 1 million yen with an add-on rate of 20%, the interest you will earn one year later will be 1 million yen x 20% = 200,000 yen. Then, the total repayment amount of 1.2 million yen is divided by the number of times to repay in one year, and the repayment amount at the time of division is calculated. Interest calculation and repayment amount calculation using the add-on method are easy to imagine and understand. If the actual annual rate is 20%, the final repayment amount will be 1.11 million yen if the repayment is made under the same conditions. In this way, even with the same 20% display, the interest will be completely different between the real annual rate method and the add-on method. The difference is whether you pay interest on the first loan or underestimate the amount of principal you earn as the repayment progresses. With the add-on method, the interest rate can be displayed lower than the real annual rate method, so it is easy to think that it is a good interest rate. Before you get a cash loan, you want to know in advance whether the interest rate is displayed as a real annual rate or an add-on annual rate.

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