Business Mathematics Brief 12th Edition by Stanley Salzman ,Gary Clendenen, Charles Miller

Exercise 62

Solve the following application problems using the Rule of 78. (See Example.)
Finding Unearned Interest and Balance Due
Aaron Ortego borrowed $6000, which he is paying back in 24 monthly payments of $295 each. With 9 payments remaining, he decides to repay the loan in full. Find (a) the amount of unearned interest and (b) the amount necessary to repay the loan in full. Use the Rule of 78.
SOLUTION

Find the amount of unearned interest as follows. The finance charge is $1080, the scheduled number of payments is 24, and the loan is paid off with 9 payments left. Solve as follows.

(b) When Ortego decides to pay off the loan, he has 9 payments of $295 left.

Ortego saves the unearned interest of $162 by paying off the loan early. Therefore, the amount needed to pay the loan in full is the sum of the remaining payments minus the unearned interest.

GARBAGE TRUCK Haul-it-Away, Inc., purchased a dump truck for $62,000. The owners made a down payment of $22,000 and financed the remainder with 36 payments of $1328.57 each. They paid off the note with 12 payments remaining. Find (a) the amount of unearned interest __________ and (b) the amount necessary to pay the loan in full. __________