Two carriers can quote the same policy loan rate and charge you on completely different schedules. The difference is when the interest gets charged.
Interest in arrears is what most people assume. You borrow $50,000, and at the policy anniversary the carrier charges the year's interest on what was outstanding. Borrow at 5%, owe $2,500 at the end of the year, either paid out of pocket or added to the loan balance.
Interest in advance means the carrier charges that year's interest at the moment you borrow. Request $50,000 at 5% and you still receive $50,000. The check doesn't shrink. What changes is the policy: the $2,500 is charged against your cash value the day the loan is issued. So the policy is carrying $52,500 of encumbrance before you've had the money a week.
That's the part people get backwards. Advance interest isn't a discounted bank note where the lender nets its interest out of the proceeds. You get every dollar you asked for. The cost lands on the policy side, in cash value you can no longer reach and in a death benefit reduced by the full amount outstanding.
Compared to arrears, you're paying the same 5% on the same $50,000. You're paying it twelve months earlier. On a loan you clear inside a year that's a small difference. On a loan that renews for a decade, you're always a year ahead on interest, and that money is sitting with the carrier instead of compounding in your policy.
Neither approach is a trick. It's disclosed in the contract, and carriers using advance interest often price the stated rate a little lower to account for it. The problem is comparing two illustrations side by side without checking which convention each one uses, since the stated rates look identical on the page.
There's a related detail on the crediting side. When a loan is outstanding, some carriers credit the collateralized portion of cash value at a different rate than the rest, and the spread between the loan rate and that credited rate is the real cost of carrying the loan. Under direct recognition it moves with the loan. Under non-direct recognition it doesn't.
It matters most on large loans. On a $300,000 loan at 5% in advance, $15,000 of interest is charged against the policy on day one, and every year the loan renews that same charge lands again before the year has run. Size your next request against available cash value minus the loan and a year of interest, not the loan alone, or you'll come up short.
Ask the carrier directly, in these words: is loan interest charged in advance or in arrears, and does the first year's interest come out of my available cash value at issue. A service rep can answer both, and the answer belongs in your notes right next to the loan rate.