Rule of 78s Loan

Also known as the sum-of-the-digits method, the Rule of 78s is an obscure and outdated formula that is sometimes still used by car dealers to calculate a refund of finance charges when a borrower pays back his or her loan early. It is also the term used for loans with a precomputed finance charge. If $10,000 is lent and the precomputed finance charge is $3,000, the borrower owes the lender $13,000 at the time the loan is made, whereas a simple interest borrower owes the lender only the $10,000 principal and monthly interest on the unpaid principal. In the United States, it is illegal to use the Rule of 78s on consumer loans having a term exceeding 61 months.