Rule of 78?
Method to accelerate the amortization of simple interest, other than by straight simple month-to-month interest on the declining principal balance. This does not really differ in the long-run as long as the loan is paid off timely, month-to-month from the beginning until the scheduled final payment. Otherwise, the interest taken is higher than simple in the earlier months of the loan and is less than simple in the final months of the loan. 78 = 1+2+3+4+5+6+7+8+9+10+11+12 (for the number of months in a year). Example: on a 60 month car loan the first month’s amortization is more heavily loaded as being 60/1830ths of the total of the interest as computed using straight simple interest assuming a full-term normal payoff. (hint: shortcut to get the number 1830 is as follows: (60/2)*(60+1)). The next month’s amortization is 59/1830ths and so on until the last month is 1/1830ths. This method can also be referred to as “the sum of the year’s digits.” In 1992, the U.S.
