Period, is the months' digits in reverse order. Theĭenominator of each fraction is obtained by adding the months'ĭigits for the life of the debt. The method would calculate a fraction for each time period. Payments and then subtracting the principal from the product. Multiplying the amount of each installment by the total number of Method, one would first compute the total financial charges by Who pays off the debt before it has matured. It is a very clever approach to penalize the borrower Of the rule-of-78 method derives from the fact that the sum of 1 throughġ2 is equal to 78. The rule-of-78 method isĪctually the sum-of-the-months'-digits method in disguise. Institutions do not employ the unpaid principal balance approach.
However, in constructing a debt payment schedule, many financial EveryĪccountant should have learned this fact in their Principles of
Theoretically, the interest portion ofĮach payment should be based on the unpaid principal balance. The payment of a debt in equal future installments is an application Rule of 78: a comparison of loan amortization.' Retrieved from 1994 National Society of Public Accountants 18 Jul.
