Use the Rule of 78 to find the amount of unearned interest for the loan paid in full before the date of maturity.
-Amount Financed: $12,250 Regular Monthly Payment: $232.75
Total Number of Payments scheduled: 60
Loan repaid in full instead of making: 36th payment

Question

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The Rule of 78 is used to calculate the amount of unearned interest when a loan is paid off early. It involves summing the digits of the months in the loan term to allocate interest. For a 60-month loan, the sum of the digits is 1830. The unearned interest is calculated based on the remaining months (24) and their sum (300). The unearned interest is then a proportion of the total interest, which is calculated using the monthly payment and the total number of payments.

Use the Rule of 78 to Find the Amount of Unearned