Front ended interest

In these cases, the interest (flat rate) is collected upfront and the party gets net amount. For example, in a loan of Rs 1 00 and front ended rate of 1 0%, the borrower will get a net amount of Rs 90 and repay Rs 1 00. The front ended rate is often called the discount. In the given case, since the borrower gets to use only Rs 90 and the interest is Rsl 0, the effective rate of interest will be 10/90 100=11.12%. This is often called the discount rate.