How Prepaid Interest Loans Work
A prepaid interest (or discount) loan deducts interest from the principal before handing you the money. You sign for $1,000 but walk away with only $900, yet you still owe the full $1,000 at maturity. Because you only have use of $900, the effective interest rate is always higher than the headline rate suggests.
This calculator reverses the math: enter what you got, what you owe, and how long the loan runs, and it reveals the true annualized rate. Compare that number to your state's usury cap or the widely-used 36% benchmark for fair consumer lending. If your rate exceeds the legal limit, you may have a right to a refund of the excess interest.
Frequently Asked Questions
Because you only use the net proceeds, not the full face value. You pay interest on $1,000 but only have $900 working for you, making the cost on the actual amount used proportionally higher.
In the US, file a complaint with the Consumer Financial Protection Bureau (CFPB) at consumerfinance.gov, or contact your state's attorney general or banking regulator.