Definitions for "Rule of 78"
A formula used to determine rebates on interest for installment loans; since 1 + 2 + ... + 12 = 78, 1/78th of the interest is owed after the first month, 3/78ths after the second month, etc.
Pre-payment penalty. In 90 days same-as-cash deals, this is the portion of the loan agreement which states that the entire loan amount plus the interest earned over the first 90 days becomes due immediately.
A method of figuring interest on a financed insurance premium where interest is paid first, resulting in a smaller returned premium (refund) to the insured when a finance agreement is cancelled early. This rule is not used when figuring an insurance premium refund--this must always be done based on the time coverage was in force (pro-rata).