FinanceCalcs
Rule of 78s Calculator
The Rule of 78s (also called the sum-of-digits method) is a way lenders calculate how much interest you owe if you pay off a loan early. Because interest is front-loaded, paying off early doesn't save as much as you might expect — this calculator shows you exactly how much.
Common in personal loans, auto loans, and older consumer credit agreements. Banned for loans over 61 months in the US since 1992, but still legal and used for shorter-term loans.
Rule of 78s Breakdown
Paying off after month 12 of 36
Interest Paid: $0
Interest Allocation by Month
| Month | Interest Portion | Principal Portion | Cumulative Interest |
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Summary
| Item | Amount |
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“The Rule of 78s front-loads interest so significantly that paying off a 36-month loan after just 12 months means you've already paid over 46% of the total interest — despite only completing a third of the term.”
— Consumer Finance Principle
How the Rule of 78s works
The name comes from the sum of digits 1 through 12, which equals 78. For a 12-month loan, the lender assigns digit 12 to month 1 (most interest), digit 11 to month 2, and so on down to digit 1 for the final month. Each month's interest is that digit divided by 78 of the total interest charge.
For longer loans, the same principle applies using the sum of digits for the full term. A 36-month loan has a sum of 1+2+...+36 = 666. Month 1 gets 36/666 of total interest; month 36 gets 1/666. The formula: Sum = n(n+1)/2.
Why this matters for early payoff: If you prepay, the lender has already collected a disproportionate share of the interest in your early payments. Your "rebate" (the interest you don't owe) is calculated using the remaining digits — which are small because the big ones were front. This is why Rule of 78s loans are often worse deals than simple-interest loans for borrowers who plan to pay early.
Is the Rule of 78s still used? In the US, it's banned for loans longer than 61 months (Consumer Protection Act, 1992). It remains legal for shorter-term loans and is still used in some personal loans, dealer financing, and international markets.
Common Questions
How do I know if my loan uses the Rule of 78s?
Check your loan agreement for language like "sum-of-digits," "Rule of 78s," or "precomputed interest." If it says "simple interest" or "actuarial method," you're likely on a standard amortizing loan where prepayment savings are more straightforward. You can also ask your lender directly.
What's the difference between Rule of 78s and simple interest?
With simple interest, interest accrues daily on the outstanding balance. Pay early, and you genuinely save the remaining interest. With Rule of 78s, the total interest is fixed upfront and allocated by the sum-of-digits formula — so early payoff "saves" less because early payments already covered most of the interest.
Can the Rule of 78s result in a prepayment penalty?
Not a penalty exactly — but the effect is similar. Because so much interest is front-loaded, your payoff balance after several months may be higher than on a comparable simple-interest loan. You're not paying a fee, but you're paying more interest than you would have under other methods.
Should I avoid Rule of 78s loans?
If you plan to hold the loan to full term, the total interest is the same either way. If there's any chance you'll pay early — refinance, sell the asset, or receive a windfall — a simple interest loan is almost always better. Always compare payoff scenarios before signing.
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