Use the example above and fill in the missing values.
consider a three-year loan (so we'll assume the numbers 1 through 36) for $5,000 with interest at 10% per year. using
standard amortization, the monthly payment is $161.33. in this example, we will not worry about exact or ordinary interest
because the total interest to be paid is $808.13.
after the fifth month, the borrower decides to prepay the whole loan. under a standard amortization plan the borrower
would have paid $198.28 in cumulative interest. however, using the rule of 78 a lender would calculate the fraction of
the total interest based on two series:
{(n+35)+(n+34)+(n+33)+(n+32)+(n+31) }
{(n)+(n+1)++(n+35)
if you add 36, 35, 34, 33, and 32, the sum is
if you sum the numbers from 1 to 36, the sum is
the fraction (the first sum / the total sum) to the nearest tenth =
%. the lender will multiply this fraction by the
total interest.
the cumulative interest = (the percentage calculated above) x ($808.13) = $
the difference between the amount paid under a standard amortization plan and the amount paid under a rule of 78
plan is: $