Unearned Interest


DEFINITION of 'Unearned Interest'

Interest that has been collected on a loan by a lending institution but has not yet been counted as income (or earnings). Instead, it is initially recorded as a liability. If the loan is paid off early, the unearned interest portion must be returned to the borrower.

Also called "unearned discount".

BREAKING DOWN 'Unearned Interest'

Unearned interest is an accounting method used by lending institutions to deal with long-term, fixed-income securities. Initially recorded as a liability, the unearned interest will eventually be recorded as income in the lending institution's books over the life of the loan as time passes and the interest is earned.

  1. Interest

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  4. Financial Statements

    Records that outline the financial activities of a business, ...
  5. Liability

    A company's legal debts or obligations that arise during the ...
  6. U.S. Savings Bonds

    A U.S. government savings bond that offers a fixed rate of interest ...
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