Are you looking to get a loan, and have heard many times about Rule of 78 from lenders? We are here to tell you all knick and knacks of this rule. It is a method used by some lenders to calculate interest charges on a loan. This rule requires the borrower to pay a greater portion of interest in the earlier part of a cycle of loans in Tampa. This method decreases the potential savings for a borrower in paying off their loan.
Where from the “Rule of 78” Evolved?
For a loan of one year, a lender sums the number of digits starting from 1 to 12 in a consecutive manner. This gives the digit 78. Since the total number of digits is equal to 78, for a one year loan the rule is called by the name of digit 78.
How it is used in money lending?
The Rule of 78 gives more priority to months in the earlier part of a borrower’s loan cycle. It is calculated while scheming interest and helps in creating greater profits for the lender. This type of interest calculation is basically used on fixed-rate non-revolving loans. Borrowers, who potentially intend to pay off their loan early, think this loan calculation schedule important. But, financing more than 61 months in the USA is made illegal in 1992 legislation.
Is It Different from APR loans?
It is quite more complex than a simple annual percentage rate (APR) loans in Tampa. However, in both types of loans, the borrower has to pay the same amount of interest on the loan, but only if they choose to pay for the full loan cycle with no pre-payment. Method of giving more weight to months in an earlier cycle of a loan is used by short-term instalment lenders who provide loans to sub-prime borrowers.
