Rule 78


R

r_mervart

The Rule of 78 has been used to govern how interest is assigned on
personal loans. Could someone please confirm that the loan providers are not
allowed to use this rule for new loans as from this month ? This is what I
have heard.

Thanks
Roman
 
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R

r_mervart

John said:
I have read the new regulations with their complicated formula in
paragraph 4.

In practice, what difference will the new legislation make, compared
to "Rule of 78"?

By the way, the new legislation takes effect on 31.05.05, so is not
yet in force.
I have not studied the complicated formulas but it was said that under the
Rule 78 the outstanding balance one needed to repay, when redeeming
early, always worked out higher than it should be for it to be fair
calculation.

Roman
 
S

s_pickle2001

r_mervart said:
I have not studied the complicated formulas but it was said that under the
Rule 78 the outstanding balance one needed to repay, when redeeming
early, always worked out higher than it should be for it to be fair
calculation.

Roman
The Rule of 78 is remarkably accurate for such a simple formula. The
problem is that it is usually acoompanied by 1 or 2 months' additional
interest for early repayment, this is what gives it a bad name.
 
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R

r_mervart

The Rule of 78 is remarkably accurate for such a simple formula. The
problem is that it is usually acoompanied by 1 or 2 months' additional
interest for early repayment, this is what gives it a bad name.
While I did not go into it the impression was given in various articles
that even if there is no redemption penalty this is rule "bad" on it's
own merit.
From one such source>
If the loan is paid off early, the lender may use the rule of 78
to determine how much interest you do not have to pay.
In many cases, due to the interest element being larger in the
repayments at the beginning of the loan, usually a large amount of
capital left to be repaid.

Roman
 
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