Ever took out a loan and thought, “Wow, ang baba ng interest!” — only to realize later… hindi pala ganun ka-linaw ang usapan? That’s probably because of something called add-on interest — and here’s why you should be careful.
💡 What is Add-On Interest?
Add-on interest means the total interest is calculated at the start, based on the full loan amount — not what you still owe each month. Even if you're paying it off gradually, you're still paying interest on the entire amount, every month.
🧮 Example:
You borrow ₱100,000 for 1 year at 10% add-on interest:
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They calculate ₱100,000 × 10% = ₱10,000
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Your total payment becomes ₱110,000
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Monthly: ₱110,000 ÷ 12 = ₱9,167
Sounds simple? Yes. Fair? Not always.
In reality, your effective interest rate is much higher — often double what’s advertised.
❌ Why It’s a Problem:
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You might think you’re getting a “low” interest loan
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But end up paying way more than expected
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Pre-terminating? No refund for “unused” interest!
✅ What to Do Instead:
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Look for diminishing balance or effective interest rate
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Ask: “What’s the total cost of the loan?”
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Always read the fine print (or ask someone who can!)
📺 Watch this video for a full explanation + visuals:
Don’t be fooled by the low numbers — know what you're really signing up for. Stay smart, stay aware. 💪💸
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