Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10.1 6/24/83; site ut-ngp.UUCP Path: utzoo!watmath!clyde!burl!ulysses!harpo!seismo!ut-sally!ut-ngp!werner 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.