what is the rule of 78 
the rule of 78 is a method used by some lenders to calculate interest charges on a loan the rule of 78 requires the borrower to pay a greater portion of interest in the earlier part of a loan cycle which decreases the potential savings for the borrower in paying off their loan understanding the rule of 78the rule of 78 gives greater weight to months in the earlier part of a borrower s loan cycle when calculating interest which increases the profit for the lender this type of interest calculation schedule is primarily used on fixed rate non revolving loans the rule of 78 is an important consideration for borrowers who potentially intend to pay off their loans early the rule of 78 holds that the borrower must pay a greater portion of the interest rate in the earlier part of the loan cycle which means the borrower will pay more than they would with a regular loan calculating rule of 78 loan interestthe rule of 78 loan interest methodology is more complex than a simple annual percentage rate apr loan in both types of loans however the borrower will pay the same amount of interest on the loan if they make payments for the full loan cycle with no pre payment the rule of 78 methodology gives added weight to months in the earlier cycle of a loan it is often used by short term installment lenders who provide loans to subprime borrowers in the case of a 12 month loan a lender would sum the number of digits through 12 months in the following calculation for a one year loan the total number of digits is equal to 78 which explains the term the rule of 78 for a two year loan the total sum of the digits would be 300 with the sum of the months calculated the lender then weights the interest payments in reverse order applying greater weight to the earlier months for a one year loan the weighting factor would be 12 78 of the total interest in the first month 11 78 in the second month 10 78 in the third month etc for a two year loan the weighting factor would be 24 300 in the first month 23 300 in the second month 22 300 in the third month etc rule of 78 vs simple interest