Solve the problem using the rule of 78s.
-A fisherman buys a new boat for $45,000. He makes a down payment of $17,000 and finances the Balance at 8% APR over 60 months. Before making the 45th payment, the fisherman decides to pay The remaining balance on the loan. How much interest will the fisherman save?
A) $359.78
B) $639.15
C) $397.69
D) $369.85

Question

Quizplus · Accepted Answer

The rule of 78s is a method of calculating the interest rebate a borrower receives if a loan is paid off early. The total interest saved by paying off the loan early can be calculated by first determining the sum of the digits for the total number of payments (in this case, 60 months), then finding the interest portion assigned to each month using the rule of 78s, and finally calculating the interest that would have been paid over the remaining months versus the interest actually paid up to the point of early payoff. The correct calculation based on the rule of 78s and the given loan details (total loan amount after down payment, interest rate, and duration) leads to the conclusion that the fisherman will save $397.69 in interest by paying off the loan early.

Solve the Problem Using the Rule of 78s