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

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

(A)  Under the discount method, interest iscomputed on the principal amount of the loan for the full term of the loan asthough the principal amount were to remain outstanding and unpaid for the fullterm of the loan.  The interest and other authorized and permitted charges maybe deducted from the principal amount at the time the loan is made and may beretained by the financial services loan company and applied (in the case ofother charges) for the purposes authorized by this article.  Interest may becomputed and retained in this manner notwithstanding the fact that periodicpayments to reduce the principal amount are required on the loan and theborrower does not receive the full principal amount, but only the balancethereof after the deductions;

(B)  Under the add-on method, interest iscomputed on the amount to be actually received by the borrower, as though theamount 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 amountto be actually received by the borrower, and the total amount produced by theaddition may then be constituted the principal amount of the loan.  The amountof the interest and other authorized and permitted charges so added may then bededucted from the principal amount and retained by the financial services loancompany at the time the loan is made.  Interest may be computed and retained inthis manner notwithstanding the fact that periodic payments to reduce theprincipal amount are required on the loan and that the amount received by theborrower is less than the principal amount by the amount of the interest andother charges;

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