Rule of 78s Calculator
Calculate early loan payoff amounts and interest rebates using the Rule of 78s (Sum of Digits) method.
Sum of Digits Interest Calculator
See how early payoff affects your interest with the Rule of 78s method
Important Notice
The Rule of 78s typically results in less rebate when paying off early compared to simple interest. This method is prohibited for loans over 61 months in the US and has additional restrictions in many states.
Understanding the Rule of 78s
What is the Rule of 78s?
The Rule of 78s (also called Sum of Digits) is a method for allocating interest charges on a loan. It's named after 78, which is the sum of digits 1 through 12 (for a 12-month loan).
This method front-loads interest, meaning you pay more interest in the early months of the loan and less toward the end. This benefits lenders when borrowers pay off loans early.
How It Works
- Calculate sum of digits: n(n+1)/2
- For a 12-month loan: 12+11+10+...+1 = 78
- Month 1 interest = (12/78) × total interest
- Month 2 interest = (11/78) × total interest
- And so on, decreasing each month
Why It Costs More to Pay Off Early
- Interest is front-loaded to early months
- By month 6 of a 12-month loan, you've paid ~73% of interest
- Simple interest would have you pay only 50% by month 6
- Your rebate is smaller than with simple interest
- The difference benefits the lender
Legal Restrictions
- Federal: Prohibited for loans over 61 months
- Many states: Have additional restrictions
- Common use: Short-term auto loans, personal loans
- Alternative: Actuarial method is more borrower-friendly
- Always check your loan agreement for the method used