Rule 78 Interest Allocation Calculator
This calculator helps you determine the interest charges for loans calculated using the Rule of 78, which allocates more interest to the earlier months of the loan. This is useful for understanding the impact of paying off a loan early, especially when prepayment penalties are involved.
Calculate Interest Allocation Using Rule of 78
Rule 78 Interest Allocation Formula
Where:
- S is the sum of digits for the loan term (e.g., 78 for a 12-month loan),
- Remaining Months is the number of months remaining in the loan term,
- Total Interest is the total interest for the loan.
The Rule of 78 is typically used for loans where the interest is front-loaded. By using this rule, lenders can allocate more of the interest payment in the earlier months of the loan term, which makes it less advantageous for borrowers who pay off their loan early. The calculator helps determine how much interest has been paid and how much remains, depending on when the loan is paid off.
This rule is most commonly used in personal loans, auto loans, and installment loans with fixed interest rates, especially when there are prepayment penalties.