Rule of 78 Settlement Calculator
This calculator works out the settlement figure of any loan using the Rule of 78, with an adjustable deferment (default 2 months). It assumes all repayments are made on time.
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Overview
The Rule of 78 calculator works out an early-settlement figure using the sum-of-digits method. It's meant for non-regulated agreements, the ones outside the Consumer Credit Act, where the actuarial method isn't required. Enter the loan amount, the term, the repayment amounts, how many months have run and a deferment period, and it returns the settlement figure, the interest rebate and the APR.
The Rule of 78 weights interest towards the early months of an agreement, so it rebates less interest on early settlement than the actuarial method does. The name comes from a one-year loan: the digits 1 to 12 add up to 78. If your agreement is a regulated consumer-credit agreement, use the actuarial settlement calculator instead. The Rule of 78 is only appropriate where the regulations don't apply.
How it works
Loan amount, term in months, the first, standard and final repayments, the number of months that have run, and the deferment period (two months by default).
Total interest is the sum of the repayments less the loan. The Rule of 78 spreads that interest across the months using sum-of-digits weighting.
The interest for the months not yet elapsed is credited back as a rebate, and the settlement is the total repayable less what you have paid and the rebate.
Worked example
Settling a 12-month loan after 6 months
Take a £2,000 loan repaid at £180 a month over 12 months. That's £2,160 repayable, so £160 of interest. Settle it after 6 payments with no deferment, and under the Rule of 78 the rebate is based on the six remaining months: (6+5+4+3+2+1) ÷ (12+11+…+1) = 21 ÷ 78 of the interest, a rebate of about £43.08.
With £1,080 already paid, the settlement figure is £2,160 − £1,080 − £43.08 = £1,036.92. The rebate is noticeably less than a straight half of the interest, because the Rule of 78 treats more of it as earned in the early months.
Frequently asked questions
What is the Rule of 78?
When should I use the Rule of 78 instead of the actuarial method?
Why does the Rule of 78 give a smaller rebate?
What is the deferment period?
Related calculators
The regulated early-settlement figure required by the (Early Settlement) Regulations 2004, with statutory deferment applied.
Open →The regulated settlement figure worked out to an exact date, for monthly, weekly, fortnightly or four-weekly agreements.
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