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: $