An agio is the difference between the face value of a loan or security (a bond, for example), and its actual, marked-up market price.
A disagio, on the other hand, is a negative difference between the face value of a loan or share and its actual, marked-down market price.
An agio is normally shown as a percentage of the face value of a security.
Example: An agio of 4% is applied to a bond with a face value of 1000 francs. As a result, the bond is marketed for 1040 francs.
When a borrower takes a loan (by issuing a bond, for example) to which an agio applies, the interest costs decrease because only the face value of the loan must be repaid. Nominal interest rates do not account for agios. However, agios are accounted for in effective interest rates.