Economics · Banking and Finance
A distinction is made between Front-end and Back-end Interest Rates. Which statement accurately describes a Front-end Interest Rate approach?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Interest or fees are amortized over the life of the loan, only becoming due when the final principal repayment is made.
- 2A portion or the entirety of the interest or loan origination fees is deducted from the principal before the loan amount is disbursed to the borrower.✓
- 3The rate changes frequently and is applied to the outstanding balance, similar to a Floating Interest Rate.
- 4The entire interest amount is calculated on the initial principal and repaid in a lump sum along with the principal at maturity.
Correct answer
A portion or the entirety of the interest or loan origination fees is deducted from the principal before the loan amount is disbursed to the borrower.
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