On anything that offers you information on how to redeem your car loan, or when you want to pay up your loan early.
What does it mean?
The Rule of 78 is a method of allocating a loan's interest and principal.
The Hire Purchase Act requires the use of the Rule of 78 for car loans.
For any standard car loan scheme, you are required to pay all the principal and interest that would have accrued over the entire loan period.
However, in the event you decide to repay the outstanding loan before the loan period ends, you will receive a rebate on the interest.
The interest rebate will be calculated using the method of Rule of 78 less 20 per cent. This is to cover some of the costs that the bank will incur when a loan is repaid early.
Under the Rule of 78, you work out the rebate using the following formula:
Rebate of interest =
[n (n+1)/N (N + 1)] x TI, where
n = The number of months remaining on the loan
N = The total loan period
TI = The total interest charged over the period of the loan
Why is it important?
This method enables you to calculate how much interest you will get back, and the total amount you need to pay the bank if you want to terminate your bank loan early.
So you want to use the term. Just say...
'I want to sell my car and buy a second-hand one. To find out how much it would cost to redeem the rest of my car loan, I had to use the Rule of 78.'
This article was first published in The Sunday Times on May 25, 2008
