Add-on interest

In the realm of Jamaican real estate, add-on interest refers to a method of calculating interest on a loan, where the total interest is determined at the outset of the loan and then added to the principal amount. This sum is divided by the number of months in the loan term to create fixed monthly payments. This method can lead to significantly higher overall costs compared to interest calculated on a declining balance, as borrowers end up paying interest on the full principal throughout the loan’s duration, regardless of how much has been repaid. In Jamaica, this practice is often seen in certain types of loans, including some real estate financing options, particularly where lenders seek to secure a higher return. However, borrowers must be cautious, as the total cost of financing can be substantially higher than initially anticipated. Internationally, the concept of add-on interest is also present, particularly in markets where there is less regulation of lending practices or in sub…