Future Business Leaders of America (FBLA) Agribusiness Practice Test

Disable ads (and more) with a membership for a one time $4.99 payment

Enhance your FBLA Agribusiness knowledge with our comprehensive test. Dive into flashcards and multiple-choice questions, complete with hints and explanations, to ensure exam success. Prepare confidently for a bright future!

Practice this question and more.

What is add-on interest?

Interest deducted from the principal immediately
Interest added onto a repayment schedule
Interest that is adjusted based on cash flow
Interest that cannot be capitalized

The correct answer is: Interest added onto a repayment schedule

Add-on interest refers to a method of calculating interest where the total interest for the duration of the loan is calculated upfront and then added to the principal amount. This means that borrowers will see that interest included in their repayment schedule, resulting in equal installment payments over the loan term. For example, if a borrower takes out a loan with a principal amount and the lender calculates the total interest for the entire loan term upfront, that total is added to the principal. The result is a fixed total that the borrower will repay in installments. This method contrasts with other types of interest calculation, like simple or compound interest, where interest accrues on the outstanding balance over time, potentially leading to lower overall payments. Add-on interest, however, can sometimes lead to a higher overall repayment amount because the interest is calculated based on the entire principal from the start, not just the remaining balance.