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7-5 HOW DO WE PAY OFF SIMPLE-INTEREST INSTALLMENT LOANS?

7-5 HOW DO WE PAY OFF SIMPLE-INTEREST INSTALLMENT LOANS?. The truth-in-Lending Law specifies that if a loan is paid off early, the lender must disclose the method for paying off the loan.

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7-5 HOW DO WE PAY OFF SIMPLE-INTEREST INSTALLMENT LOANS?

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  1. 7-5 HOW DO WE PAY OFF SIMPLE-INTEREST INSTALLMENT LOANS? • The truth-in-Lending Law specifies that if a loan is paid off early, the lender must disclose the method for paying off the loan. • Because interest is always paid on the unpaid balance, you just pay the previous balance plus the current month’s interest if you pay off a simple interest installment loan before the end of the term. • The final payment is the previous balance plus the current month’s interest. Final Payment= Previous Balance + Current Month’s Interest

  2. LET’s PRACTICE The first three months of the repayment schedule for Doug and Donna Collins’s loan of $1800 at 12% for 6 months is shown. What is the final payment if they pay the loan off with payment number 4? Find the previous balance. It is $913.70 Find the interest for the 4th month.(Principal x Rate x Time) $913.70 x 12% x 1/12 = $9.14 interest Find the final payment.(Previous Balance + Current Month’s Interest) $913.70 + $9.14 = $922.84 final payment

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