USA Relationship between actuarial method and US Rule for partial payments

[Bookkeeper2022]

I'm confused by how these two concepts relate. If a creditor uses the actuarial method for an instalment loan, partial payments will result in compound interest when the payment is insufficient to cover the accrued interest at the time of payment. But the US Rule for partial payments prevents compound interest by saying the unpaid interest is tracked separately from the principal, so there is no interest on interest. Are these two concepts in conflict? And how do you know how to treat unpaid interest when the borrower's payment isn't enough to cover the interest due?

 

[Kat Maple]

Hi Bookkeeper2022

See this article:

What Is U.S. Rule? | PDF | Compound Interest | Interest (scribd.com)

Article describes how the US rule is inconsistent with actuarial method.

And your company lawyer is the one to guide you on what law applies to partial payments in your jurisdiction.

Kat