84. Partial payments: the United States rule

The lesson, step by step

1. Warm-up

   Ask: If you owe $100 and pay $30 now, should the interest after that be on $100 or on $70?

2. The idea

   Read:

   A Partial Payment is a payment in part of a note or other obligation.

   and the heart of the rule:

   The rule for casting interest when partial payments have been made, is to apply the payment, in the first place, to the discharge of the interest due.

   If the payment exceeds the interest, the surplus goes towards discharging the principal, and the subsequent interest is to be computed on the balance of principal remaining due.

3. The principles

   Read:

   Interest must, in no case, become part of the principal.

   Interest or payment must not draw interest.

   SayIf a payment is too small to cover the interest, we just wait. We add up payments until they cover the interest.

4. Work the book's example

   Use the Cincinnati note for $850, dated April 29, 1880. Follow the book's worked solution line by line. Your student copies each line: the interest to the payment date, the sum due, the payment, the new balance. Notice that the June 9 payment of $32 is less than the interest due, so it is held over.

5. Guided practice

   Do the next note on the page together, step by step, the way the book does it.

6. Independent practice

   Your student works one more note alone. These are long, so one or two is plenty for a day.

7. Wrap-up

   Read the book's remark about the rule:

   who thus suffers a penalty for his very promptness.

   Ask: Why might frequent small payments cost a debtor more under this rule?