More Information about the Constant Yield (Actuarial) Method

As an alternative to the Rule of 78 method, the Constant Yield (Actuarial) method can be used to calculate the rebate amount in a precomputed finance agreement. Under this method, the amount of each payment allocated to interest is generally determined by multiplying the outstanding principal balance by the monthly interest rate (the remainder of each monthly payment is credited to principal). Under this method, the lender earns interest at an equal rate over the term of the loan.

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