1. A situation where all the
interest on a
loan is paid at once. That is, the interest is
deducted from the amount the
borrower receives at the beginning of the loan. For example, if a
bank makes a loan of $20,000 at a
simple interest rate (that is, a non-compounding rate) of 5%, the bank simply does not give the borrower $1,000 (or 5% of $20,000). The borrower effectively borrows $19,000 and
repays it with no interest. Discount interest is very rare in
retail banking.
2. See:
Discount rate.