Our Rule of 78s Loan Calculator helps you determine the interest portion of each payment and understand the impact of an early loan payoff. Quickly calculate finance charges for installment loans and discover potential savings or the interest still due.
Formula:
The Rule of 78s, also known as the Sum of the Years' Digits method, is a method of allocating a higher proportion of interest to the earlier periods of a loan, common in some older installment loan agreements. It significantly affects the interest rebate you receive for an early payoff.
The total sum of digits for the loan's original term (n months) is calculated as:
Sum of Digits (Sn) = n × (n + 1) ÷ 2
When paying off a loan early with k payments remaining, the interest rebate is calculated using the following formula:
Interest Rebate = (Original Total Finance Charge) × [k × (k + 1)] ÷ [n × (n + 1)]
Where:
- Original Total Finance Charge: The total interest originally scheduled to be paid over the loan's full term.
- n: The original total number of payments (months) for the loan.
- k: The number of payments remaining when the loan is paid off early.
The interest still due under the Rule of 78s is the Original Total Finance Charge minus this calculated Interest Rebate.