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From: werner@ut-ngp.UUCP
Newsgroups: net.consumers,net.misc
Subject: Re: What is "rule of 78's"?
Message-ID: <407@ut-ngp.UUCP>
Date: Mon, 19-Mar-84 11:45:18 EST
Article-I.D.: ut-ngp.407
Posted: Mon Mar 19 11:45:18 1984
Date-Received: Tue, 20-Mar-84 01:54:59 EST
References: <1070@proper.UUCP>
Organization: Comp. Center, Univ. of Texas at Austin
Lines: 35

STOMP

> what is the rule of 78 often found in loan agreements?

	it applies to the case when you want to prepay the loan, and
	regulates how to calculate the amount you have to pay to cancel the
	loan.
	
	When you make a monthly payment, part is for interest, of course,
	sometimes there is a managing or handling fee, the rest should
	be applied to reduce your debt.

	You might have expected that a prepayment could be simply calculated
	by subtracting from the principal original debt the amount of money
	in your payments which did not go for interest, etc.

	Well, think again, as the rule of 78 is a table of percentages
	or fractions, which specifies how much the prepayment amount is
	after X monthly (or whatever) payments.  This table works to your
	disadvantage, as the amount comes out as more as you might otherwise
	have expected.

	I hope, you posed this question to your loan-officer before signing
	anything, and that he gave you a similar explanation.  If he did not
	you have reasons to complain to whatever state-board for banking may
	exist in your state, and you might be able to renegotiate the loan,
	or cancel it completely.  However, don't get your hopes up, it
	probably is not worth the effort.

		Cheers,
				Werner

	The RULE of 78: just another way to keep banks profitable.