Loan in which the entire financing charge is subtracted from the initial loan proceeds. The total amount of funds received is the face value of the loan less this deduction. For example, a $50,000 one-year loan borrowed at a discount rate of 12% would result in $44,000 being disbursed at the loan closing. The effective interest rate would be 13.6%, not the 12% discount rate (since only $44,000 is received).