Paying off a loan early saves the consumer no money if the sum-of-digits method has been used to figure finance charges. True or False?

The statement is true, as the sum-of-digits method, also known as the Rule of 78s, allocates more interest to the earlier payments of a loan. When this method is used, the total interest cost is effectively front-loaded, meaning that the consumer pays a larger portion of the finance charges in the early months of the loan term.

Consequently, if a consumer pays off a loan early, they may not see a financial benefit from doing so because the interest savings would be minimal or non-existent. This is due to the fact that the interest charged for the remaining loan term has already been calculated and is generally locked in. As a result, the consumer effectively ends up paying the same amount of interest regardless of whether they complete the full term or pay off the loan sooner.

Hence, in the context of how the sum-of-digits method works, the assertion that early loan payoff does not save money holds true. This scenario differs from other interest calculation methods, such as simple interest or amortized interest, where early payments could lead to savings.