7.15 Rule of 78's Example

Example: 12 month loan with current payment of $93.33 and original balance = $1,000.00

1. Sum all principal and interest payments made over the life of the instrument:

   Cash Flow= current payment * total number of payments

   = $93.33 * 12

   = $1,120.00

2. Determine total amount of interest paid over the life of the instrument:

   interest= cash flow - original par balance

   = $1,120.00 - $1,000.00

   = $120.00

3. Sum the payment numbers:

   pmts= total no. payments * (total no. payments + 1)/2

   = 12 * 13/2

   = 78

4. Calculate principal and interest amount at each payment.

   interest=interest * (payments remaining/ pmts)

   principal= current payment - interest

Table 7-31 Example of Calculate Principal and Interest Amount at each payment

Month	Interest Calculation	Interest	Principal	Remaining Balance
1	12/78 * 120	$18.46	$74.87	$925.13
2	11/78 * 120	$16.92	$76.41	$848.72
3	10/78 * 120	$15.38	$77.95	$770.77
4	9/78 * 120	$13.85	$79.48	$691.29
5	8/78 * 120	$12.31	$81.02	$610.27
6	7/78 * 120	$10.77	$82.56	$527.71
7	6/78 * 120	$9.23	$84.10	$443.61
8	5/78 * 120	$7.69	$85.64	$357.97
9	4/78 * 120	$6.15	$87.18	$270.79
10	3/78 * 120	$4.61	$88.72	$182.07
11	2/78 * 120	$3.08	$90.25	$91.82
12	1/78 * 120	$1.54	$91.79	$0.00