Rule 78 - are stuck with it?

newbie_al

I am desperate to be debt free, right now I am coping with all payments. I want to settle a loan early (75,000) but I know I will be hit by rule 78 (as per terms and conditions). The loan company is First Plus - any tips or strategies to get them to agree not apply rule 78 or are you just going to tell me to hang in there until May 2010.
Regards
al

chevalier

Sorry with the best will in the world, I don't have a clue to what you are referring, but

bump
for someone who does
chev

iceicebaby

Hiya newbie-al

when did you take the loan out?

beanielou

Have heard of rule 78 but cant help much on how it all works-sorry.

Gemmzie

Isn't it Rule 74??

CLAPTON

although rule 78 was abolished for loans regulated by the CCA since may 2005, loans above 25k are outside the scope of the CCA so i doubt if you will have any luck in getting the contract changed.

brainfreeze

newbie_al wrote: »

I am desperate to be debt free, right now I am coping with all payments. I want to settle a loan early (75,000) but I know I will be hit by rule 78 (as per terms and conditions). The loan company is First Plus - any tips or strategies to get them to agree not apply rule 78 or are you just going to tell me to hang in there until May 2010.
Regards
al

Depends when you took the loan out. You obviously took it out before May 2005 as it is only applicable to loans taken out prior to that date (and only then if it was part of the original agreement). You say it finishes in 2010 but as you probably know Rule 78 calculates the early repayments by working out how much interest you should have paid at any time during the repayment period of a loan. The interest is not spread evenly over the payments during the term of the loan.You pay more interest in the beginning of a loan and because every repayment is set at the same size, the bit of the payment which pays off the capital is much smaller at the beginning of the loan and become larger as the loan period goes by (someone else will probably explain this better than me though )

It's called Rule 78 because it's based on the 12 months of a one-year period. When the 12 months are added together (12+11+10+9+8+7+6+5+4+3+2+1) you reach a total of 78 (who on earth worked this one out ). So imagine you took a loan out over 1 year, you would be required to pay 12/78ths of the interest in the month 1 and 11/78ths in months 2 and so on until eventually in month 12 you would only be paying 1/78th interest.

Confused? Me too:rotfl:

If you want to pay the loan off early the lender can apply rule 78 to calculate how much interest you will not have to pay. This sounds good - BUT because the interest part was larger than the repayments at the beginning of the loan it means that you will have a large chunk of the capital (original loan amount) remaining unpaid. For this reason loans repaid early under Rule 78 tend to appear to have higher redemption figures than standard loans.

If you have your original agreement and know the total amount of interest that was to be charged you should be able to work out how much capital you have left to pay and this will give you an indication of redemption figure.

brainfreeze

Sorry - didn't really answer your post. You are 99% stuck with it. You can try, but have worked in the finance sector for almost 30 years I know that it is highly unlikely that First Plus will redeem this loan any other way if, as you say, Rule 78 is part of the original terms and conditions of the loan agreement.

I_was_a_fool

Interesting...I was caught out by this horrible rule several years ago & the most nasty bit was, I asked for a settlement figure, & decided could not settle. Around a year later, asked for a settlement figure again and it was MORE than the first one. Felt like a years worth of payments had been thrown away :-(

Protested to no avail & remain bitter about it to this very day:rotfl:

I will never figure out how that could happen!!