Rule of 78s is a mathematical formula that was devised in the days before modern calculators. The formula was a quick way for lenders in the 1920s and 1930s to estimate payoff amounts when a customer paid ahead on an installment loan. Some auto lenders still use the "Rule of 78s" formula to calculate a rebate of finance charges when a customer pays off a pre-computed loan early. For a borrower looking to end an auto loan early, there isn't a worse way a lender could calculate your payoff amount. The Rule of 78s formula packs extra interest charges into the early months of a loan. Using Rule of 78s, a lender typically collects three-quarters of a loan's interest in the first half of a loan term. The Rule of 78s can only be applied to pre-computed loans that are paid ahead of schedule. The formula cannot be applied to simple interest loans.
| APA | Barry Goldsmith. (2010). rule of 78s. Retrieved September 22, 2026, from http://smartdefine.org/rule_of_78s/definitions/1162777 |
| Chicago | Barry Goldsmith. 2010. "rule of 78s" http://smartdefine.org/rule_of_78s/definitions/1162777 (accessed September 22, 2026). |
| Harvard | Barry Goldsmith 2010, rule of 78s, Smart Define, viewed 22 September, 2026, <http://smartdefine.org/rule_of_78s/definitions/1162777>. |
| MLA | Barry Goldsmith. "rule of 78s" 21 October 2010. Web. 22 September 2026. <http://smartdefine.org/rule_of_78s/definitions/1162777> |