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Question: James Jones received an $8,000 loan last month with the intention of repaying the loan in 12 months. However, Jones now discovers he has cash to repay the loan after making just two payments. What percentage of the total finance charge is Jones enti­tled to receive as a rebate and what percentage of the loan's finance charge is the lender entitled to keep?

The Watson family has been planning a vacation to Europe for the past two years. Stilwater Savings agrees to advance a loan of $8,500 to finance the trip provided the Watsons pay the loan back in 12 equal monthly installments. Stilwater will charge an add-on loan rate of 6 percent. How much in interest will the Watsons pay under the add-on rate method? What is the amount of each required monthly payment? What is the effective loan rate in this case?

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