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.
“All the ones I’ve seen have had really high interest rates,” says Mark Eskeldson, an auto expert and author of Car Info.com, a consumer information and advocacy Web site.
“If a car dealer is trying to put you into a rule of 78s loan it’s fairly safe to assume that the dealer has packed your interest rate — he’s inflated it.” Don’t let this happen to you.
A loan is a debt provided by an organization or individual to another entity at an interest rate, and evidenced by a promissory note which specifies, among other things, the principal amount of money borrowed, the interest rate the lender is charging, and date of repayment.