Does An Auto Loan Calculator Protect You Against The ‘Rule Of 78’S’?

So you have finally decided to get ahead of the game when it comes to finding that perfect auto loan, having a list of potential lenders detailed loan information, a handy auto loan calculator and a pre-made payment schedule that you created yourself for each one.  That is great, but you have one or more auto loan offering that can get you rebates and oh, how we all love a rebate when we shop as it normally reduces the costs of what we buy or even gets us money back.  However, rebates should be absolutely avoided in the case of auto loans and no matter how skilful you may be at using an auto loan calculator, the reality is very different, especially if the lenders are using the ‘rule of 78s’.
The ‘rule of 78s’ is an antiquated method of calculating what you may believe to be financial fees, charges or even interest rebates, but in actuality they are a deceptive method that was once widely used by lenders of auto loans as a means to make more money from you due to variable and not simple interest rates or as a disguise for a payment penalty.  The fact is that you could be caught as many have been, whether or not you use your handy auto loan calculator, with a financial headache and surprise that you did not bargain on.
The ‘rule of 78s’ was formulated back in the 20’s and 30’s, last century, by lenders as a means of estimation of dealing with early payments, variable interest changes and as a penalty for paying of an auto loan ahead of the designated end date of the contract.  As there were no automobile loan calculators in those days, as they had not yet been invented, the calculations appeared to be honest and accurate.  The reality is that they are just financial padding that is added to an auto loan to make the lender more money and by no means benefits you in any way.  So, no amount of preplanning on your behalf with your own auto loan calculator will be of any use under that rule.
The interesting thing is that you may have the means to deal with the issues surrounding the ‘rule of 78s’, have the money to account for any excess and this may not be a big issue for you.  However, for most people, each dollar extra can make the difference between personal financial survival with a vehicle or sudden debt that could result in having to sell the vehicle, have a bad credit rating due to the inability to pay the extra or even worse, the repossession of the vehicle.  Whatever the case, your auto loan calculator can protect you from the ‘rule of 78s’ under only certain circumstances:
• You read the auto loan contract thoroughly, including the small print (front and back), knowing that the interest rate is variable and are willing to use the auto loan calculator to calculate the changing interest and how save back the extra money that accumulates, OR,
• You create scenarios for each potential loan, creating varied payment schedules and use your auto loan calculator to show what the excess may be should the interest rates fluctuate, do the same with your personal budget, see if you can afford such a loan financially and/or opt for an auto loan using simple interest

Tags: auto loan, auto loan calculator
Filed under: Auto Loan Calculator