About the Add-On Interest Calculator
This add-on interest calculator works out the real cost of a flat-rate or “add-on” loan. With add-on interest the lender calculates interest on the full original amount for the whole term, adds it to the principal up front, and divides the total into equal payments. Because you are charged interest on money you have already repaid, the true annual percentage rate (APR) is nearly double the quoted add-on rate.
Add-on interest still appears in some used-car “buy here, pay here” financing, consumer installment loans, furniture and appliance financing, and in many countries where personal loans are quoted as a flat rate. Enter the amount, the add-on rate and the term to see the monthly payment, total interest and the equivalent APR on a standard amortizing loan.
The calculator also shows how much interest you would pay on a simple-interest (amortizing) loan at the same quoted rate, so you can see the difference in dollars. Fees are not included; add them to the interest to get a fuller APR.
With the default inputs, the monthly payment is $344.44. Change any value above to recalculate instantly.
How to use the add-on interest calculator
- 1Enter the amount you are borrowing.
- 2Enter the add-on or flat interest rate the lender quoted.
- 3Enter the term in months.
- 4Compare the equivalent APR with offers quoted as simple-interest APRs.
Formula and method
Add-on interest I is the principal P times the yearly add-on rate R times the term in years t (months ÷ 12). It is added to the principal and the total is split into n equal monthly payments M.
To find the true APR, the calculator asks what monthly rate i on an ordinary amortizing loan would produce the same payment for the same amount and term, solving numerically and multiplying by 12. Because an amortizing loan charges interest only on the declining balance, the equivalent APR is always higher than the add-on rate — roughly 1.8 times it for typical rates and terms of two to five years.
- P
- Amount borrowed
- R
- Add-on (flat) yearly rate
- t
- Term in years
- n
- Number of monthly payments
- i
- Equivalent monthly rate on a declining balance
Worked examples
$10,000 at 8% add-on for 36 months
Interest is $10,000 × 8% × 3 years = $2,400, so you repay $12,400 in 36 payments of $344.44. An amortizing loan with that payment has an APR of about 14.55% — nearly twice the quoted 8%.
$25,000 at 6% add-on for 60 months
Five years of 6% flat interest on $25,000 is $7,500. The $541.67 payment equates to roughly 10.85% APR on a standard loan.
$5,000 at 12% add-on for 24 months
Two years at 12% flat adds $1,200 of interest, for payments of $258.33. The true APR is about 21.57%.
Frequently asked questions
What is add-on interest?+
Add-on interest is calculated on the full original loan amount for the entire term and added to the principal at the start. Your payments are the total divided evenly, so you keep paying interest on money you have already repaid.
How do I convert an add-on rate to APR?+
Work out the monthly payment from the add-on method, then find the interest rate on a normal amortizing loan that gives the same payment. For typical rates and terms the APR is roughly 1.8 times the add-on rate.
Is add-on interest the same as a flat rate?+
Yes. “Flat rate” is the common name in the UK, India, Southeast Asia and elsewhere; “add-on” or “precomputed” interest is the usual US term. Both charge interest on the original amount rather than the declining balance.
Does paying off an add-on loan early save money?+
Often less than you expect. Many precomputed loans refund unearned interest using the Rule of 78s, which front-loads interest. Check your contract for how rebates are calculated.
Must lenders disclose the APR on add-on loans?+
In the US, the Truth in Lending Act requires lenders to disclose the APR on consumer credit, so an add-on loan should show a much higher APR than its add-on rate on the disclosure.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.