What Is a Rule of 78 Rebate Calculator?

A rule of 78 rebate calculator works out the interest a borrower gets back when a precomputed instalment loan is settled early. Precomputed contracts add the whole finance charge to the amount financed at the outset and then divide the total into equal payments. When the borrower pays the balance off ahead of schedule, part of that pre-charged interest has not been earned yet and must be refunded. The rule of 78 decides how much.

The name comes from the arithmetic. For a twelve-month loan the payment numbers are one to twelve, and their total is seventy-eight. Interest is allocated in the proportion of twelve, eleven, ten and so on down to one, so the first payment carries twelve seventy-eighths of the finance charge and the last carries one seventy-eighth. That front-loaded split is why an early payoff returns less interest than accrual accounting would suggest.

How the Rebate Is Calculated

The calculator builds the precomputed payment from the amount financed, the rate and the term, then multiplies that payment by the number of instalments to get the finance charge. The sum of the digits for the whole term is the term multiplied by the term plus one, divided by two. For the payments still outstanding, the same formula applied to the remaining months gives the remaining sum of digits.

The rebate is the finance charge multiplied by the remaining sum of digits divided by the total sum of digits, and the payoff is the remaining scheduled payments less that rebate. Alongside it the calculator runs an actuarial amortisation of the same loan, crediting interest only as it is earned on the declining balance. The difference between the two payoffs is the amount the rule of 78 charges for settling early.

Understanding Your Results

The primary card reports the payoff figure for settling today, with the rebate and the number of payments remaining underneath. The three statistics beside it show the rebate, the actuarial payoff on the same balance, and the extra cost of the rule of 78. The breakdown table compares both methods at six-payment intervals so the penalty is visible at every point in the term, with your own payoff month highlighted.

Summary Statistics collects the amount financed, monthly payment, finance charge, the total if the loan runs to term, payments made and remaining, both sums of digits, the remaining scheduled payments, the rebate as a share of the finance charge, the interest each method leaves with the lender, the rule of 78 payoff and the cost of the method. The extra cost shrinks the further into the term you go, which is the practical argument for waiting before settling a precomputed contract early.