We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
help with "rule of 78" loan calculation?
Options
Comments
-
On Money Supermarket: did a few checks on what loans were on offer and they were chucked up there.
First Plus was one.0 -
^^^bump^^^0
-
You dont have a link for that site do you??0
-
found this on a website a while ago - bhope it helps
When you borrow a sum of money from a bank or other lender, you usually arrange to repay the loan with a fixed interest rate by a specific date in a set number of equal installments. The rule of 78 is one way in which lenders calculate how much interest you should have paid at any stage during the repayment period of a fixed rate installment loan.
Where does "78" come from? The number derives from the 12 monthly parts of a one-year period. The sum of those parts (12+11+10+9+8+7+6+5+4+3+2+1) is 78. Thus, for a loan with a one-year duration, the lender expects you to pay 12/78ths of the interest in month one, 11/78ths in month two and so on down to 1/78th in month twelve.
The rule of 78 takes into consideration the fact that you pay more interest in the beginning of a loan when you have the use of more of the money and you pay less interest as the debt is reduced. Because each repayment installment is the same size, the part going to pay off the amount borrowed increases over time and the part representing interest decreases.
Should you decide to repay a loan early, the lending institution will use the rule of 78 to determine how much interest you do not have to pay. However, you may be unpleasantly surprised by how much of the capital sum of your loan remains outstanding.
The key point is that the interest you are charged on the sum you have borrowed is NOT spread evenly over the number of payments you have agree to make. Thus in the early period of your loan's life span you have been paying more interest and less capital, reducing the outstanding amount more slowly than you may have assumed.0 -
The site was moneysupermarket.com and the line from the details of the loan simply said:First Plus calculate redemption penalties based on the new 1+1 calculation.0
-
Rose thanks for that but the info you've given is in the MSE articles and not 1+1...0
-
currently have loan with yorkshire bank for £18000 . tried to redeem early (20 months inot 7 year loan) and have been caught out by rule 78 and early redemption fees. Feel bit mislead as asked advice of bank for borrowing with option to redeem early and was sold this product !!!!???
However have read somewhere that the rule 78 is being taken out of use may 2007...... does anyone know if this means that if we redeem after that date (ie stick our money to redeem in an savings account and wait) whether it will be applied retrospectively. What to do ?0 -
New laws are rarely if ever retrospective................................I have put my clock back....... Kcolc ym0
-
This one is...Loans taken out prior to the introduction of the Act fall under it after 31st May 2007 if original term was 10 years or less...The date becomes 31st May 2010 if original loan term was more than ten years. Para 10 in this link refers:
http://www.opsi.gov.uk/si/si2004/20041483.htm0 -
Hello all
I am looking for the best possible solution for my sister and have listed the details of her loan below..
Lender: Abbey
Amount: 10k
Interest: 12.5% annual
Repayments: £265 ( without ppi)
Term of loan: 4 years to end in 2008
recent settlement figure given:£6625.72
She is in a situation where she can repay this loan early but would it be beneficial for her to do under this rule 78 thingy..?
Looking through other threads some have mentioned paying off a chunk leaving all but 1 final payment to be called as DD and therefore cancelled by Abbey in the hope that she would not be charged for ending the loan as this would be done by them?
Or by paying off the chunk of the loan leaving 1 payment left and then asking for settlement figure the interest will be lower as calculated on a 60 day term? is this correct..
Either way she is looking for the cheapest way that she can get out of this loan early.MFWB
Mortgage when started: £232,000
Current mortgage Sept 2024: £232,000
Mortgage free day: Sept 2029
Saving: £12k 20250
This discussion has been closed.
Confirm your email address to Create Threads and Reply

Categories
- All Categories
- 350.9K Banking & Borrowing
- 253.1K Reduce Debt & Boost Income
- 453.5K Spending & Discounts
- 243.9K Work, Benefits & Business
- 598.7K Mortgages, Homes & Bills
- 176.9K Life & Family
- 257.2K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.6K Read-Only Boards