What type of note deducts interest from the face value of the note?

A noninterest-bearing note is a type of financial instrument where the interest is deducted from the face value at the time of issuance. This means that the borrower receives less than the face value of the note upfront, and when the note matures, they will repay the full face value. The difference between the face value and the amount received constitutes the interest cost for the borrower.

In practical terms, if a noninterest-bearing note has a face value of $1,000 and the interest is set at $100, the borrower would receive only $900 when the note is issued. At maturity, the borrower is obligated to pay back the entire $1,000, with the $100 effectively being the cost of borrowing over the duration of the note. This structure is advantageous in certain transactions where up-front cash flow is more favorable.

Other types of notes, such as interest-bearing notes and secured notes, involve different mechanisms for interest payment and collateral requirements, which do not align with the definition of deducting interest from the face value. A promissory note is a broader category that can include both interest-bearing and noninterest-bearing types but does not specifically denote the characteristic of deducting interest as seen in noninterest-bearing notes.