A formula used to determine rebates on interest for installment loans; since 1 + 2 + ... + 12 = 78, 1/78th of the interest is owed after the first month, 3/78ths after the second month, etc.
Pre-payment penalty. In 90 days same-as-cash deals, this is the portion of the loan agreement which states that the entire loan amount plus the interest earned over the first 90 days becomes due immediately.
A method of figuring interest on a financed insurance premium where interest is paid first, resulting in a smaller returned premium (refund) to the insured when a finance agreement is cancelled early. This rule is not used when figuring an insurance premium refund--this must always be done based on the time coverage was in force (pro-rata).
A method for calculating interest charges based on the remaining term of the loan. Typically Rule of 78 charges more interest in the early month of your motorcycle loan so if you pay your loan off early you are penalized. This is why simple interest motorcycle loans are better than pre-computed motorcycle loans that use Rule of 78.
This is a method for calculating the amount of unused premium which takes into account the fact that more insurance coverage is required in the early months of the loan, since the payoff of the loan is greater. As the loan is paid off, less coverage is being paid for, so the refund percentage decreases.
Enables one to calculate the amount of interest a borrower must pay when he or she repays a loan, in full, before it matures.
An accelerated method of allocating periodic earnings in a lease (or a loan) based upon the sum-of-the-years method. The method recognizes principal reductions at a slower rate than the simple interest method.
An accelerated method of allocating periodic earnings in a lease (or a loan) based upon the sum-of-the-years method. ALE-LEASEBACK An arrangement whereby equipment is purchased by a lessor from the company owning and using it. The lessor then becomes the owner and leases it back to the original owner, who continues to use the equipment.
Calculates proportionate amount of interest due on a loan being paid in full before its maturity.
A formula used by lenders to calculate an early settlement figure for instalment loans. For a loan paid back in 12 monthly instalments, since 1 + 2 + 3 etc + 11 + 12 = 78, 12/78ths of the interest is owed after the first month, 11/78ths after the second month, and so on until 1/78th of the interest is owed at the end of the 12th month.
The Rule of 78 is a method used to calculate a rebate of credit charges in the event of early settlement of a credit transaction. It is so called because it assumes that charges are spread in the ratio which the number or remaining instalments bears to the total number of instalments in the agreement. For example, in a 12 months agreement where repayment is to be made in equal monthly instalments, 12178 of a charge is treated as earned in the first month, 11/78 in the second month, and so on. This method is known as the Rule of 78 because the sum of the numbers 1 to 12 equals 78.
This approach used by banks to formulate a loan amortization schedule is often referred to as The Rule of the Sum of the Digits. This method of computing unearned interest is used on installment loans with add-on interest. The number 78 is based on the sum of the digits from 1 to 12. This causes a borrower to pay more interest at the beginning of the loan when there is more money owed and less interest as the obligation is reduced.
