The Rule of 78s demonstrates that a borrower pays:
A)more interest at the beginning of the loan period.
B)more interest at the end of the loan period.
C)more interest in the middle of the loan period.
D)less interest than indicated by the APR.
E)equal amounts of interest throughout the loan.

Question

Quizplus · Accepted Answer

The Rule of 78s is a method used to calculate prepayment penalties on certain loans. It assumes that interest is evenly distributed over the life of the loan, but because the borrower is paying off more of the principal at the end of the loan period, they end up paying a higher proportion of interest at the beginning of the loan period. Therefore, option A is correct.

The Rule of 78s Demonstrates That a Borrower Pays