The “sum of digits” method front-loads interest into a precomputed loan’s early payments — which matters most to a borrower who pays the loan off early.
How it works
The digits of the loan’s months (1 through n) are summed, and each month’s share of the total interest is weighted by its remaining-months count divided by that sum — month 1 of a 12-month loan carries weight 12, the final month carries weight 1.
What this does not include
Per the Cornell Law source, this method is barred by federal law for precomputed consumer loans longer than 61 months, and roughly half the states restrict or ban it for shorter loans too — this calculator shows the math for historical and comparison purposes, not as a method available on every loan today.
How to use this calculator
- Enter the total interest over the full loan term and the term length.
- Enter the month you’re considering paying the loan off early.
Frequently asked questions
Is the Rule of 78 legal?
Federal law bars it for precomputed consumer loans over 61 months; many states additionally restrict it for shorter loans — check state law before assuming it applies.
Does the total interest change under this method?
No — over the full term, total interest is identical to a standard amortized loan. The difference only shows up if the loan is paid off early.
Why does early payoff cost more under Rule of 78?
Because more interest is allocated to the early months than a straight-line (pro rata) split would give, so paying off early leaves less of the total interest “unearned” than a borrower might expect.
