412:9-301 Interest computation methods. A financial services loan company may charge, contract for, and receive interest on loans on a precomputed basis or a simple interest basis.

(1) Precomputed loans are loans where interest is paid or deducted in advance at the inception of the loans. The two types of precomputed loans, discount and add-on, are as follows:

(A) Under the discount method, interest is computed on the principal amount of the loan for the full term of the loan as though the principal amount were to remain outstanding and unpaid for the full term of the loan. The interest and other authorized and permitted charges may be deducted from the principal amount at the time the loan is made and may be retained by the financial services loan company and applied (in the case of other charges) for the purposes authorized by this article. Interest may be computed and retained in this manner notwithstanding the fact that periodic payments to reduce the principal amount are required on the loan and the borrower does not receive the full principal amount, but only the balance thereof after the deductions;

(B) Under the add-on method, interest is computed on the amount to be actually received by the borrower, as though the amount were to remain outstanding and unpaid for the full term of the loan. Interest and other authorized and permitted charges may be added to the amount to be actually received by the borrower, and the total amount produced by the addition may then be constituted the principal amount of the loan. The amount of the interest and other authorized and permitted charges so added may then be deducted from the principal amount and retained by the financial services loan company at the time the loan is made. Interest may be computed and retained in this manner notwithstanding the fact that periodic payments to reduce the principal amount are required on the loan and that the amount received by the borrower is less than the principal amount by the amount of the interest and other charges;

(2) Simple interest loans are loans on which interest is computed on the principal balance remaining unpaid from time to time. "Principal balance remaining unpaid" is defined as the original principal amount less payments applied to reduce the original principal amount. [L 1993, c 350, pt of 1]

 

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