Discount loan is a loan on which the interest and financing charges are deducted from the face amount when the loan is closed. The borrower only receives the principal after the financing charges and interest are taken out but must repay the full amount of the loan.
For example: If you close a loan for the amount of 50,000. If the interest and financing charges were 10,000, you would receive 40,000 from the lender, but still, have to pay back the whole 50,000. This is primarily used for short-term loans.