Margaret obtains a personal loan of 1200 at 834 interest fo

Margaret obtains a personal loan of $1,200 at 834 % interest for 1 year. Given that the bank follows the rule of 78, construct the payment schedule showing five columns: payment number, payment fraction, monthly interest portion, monthly principal portion, and monthly payment.

Solution

I think you have the interest rate incorrect, or Margaret is borrowing from a loan shark as well as using a loan rate that is sneaky as you pay most of your interest off at the beginning of the loan so paying off early isn\'t beneficial to the consumer.

If you don\'t terminate the loan early, simple interest loans and Rule of 78 loans will be equivalent. You will pay the same amount and get the interest rate quoted. However, if you pay off the loan early, you will end up paying more interest with a Rule of 78 loan than with the corresponding \"simple interest\" loan. For that reason, you should not take loans computed on the \"Rule of 78\".

In a loan using the rule of 78 the amount of interest paid each month is determined using a fixed linear scale, and the annualized interest rate actually changes each month.

The denominator of a Rule of 78 loan is the sum of the digits, the sum of the number of monthly payments in the loan. For a 12 month loan, the sum of numbers from 1 to 12 is 78 (1 + 2 + 3 + . . . +12 = 78).

The sum of the numbers from 1 to n is given by the equation n * (n+1) / 2.

For a 12 month loan, 12/78s of the finance charge is assessed as the first month