One mistake is not being acquainted with the "Rule of 78
"--the most widely used formula for devising a 12-month sales comp plan.
Before the new rules came into effect, if you asked to repay early, many lenders used a calculation called the Rule of 78
to work out how much interest they would lose.
Most lenders - including these three - also use a complex interest calculation called the Rule of 78
to increase the total payable if you settle early.
The new legislation abolishes the Rule of 78
, used by lenders to calculate how much consumers have to pay when they settle a loan early, and replaces it with a new, fairer, actuarial method to calculate costs.
4 Always look at the terms and conditions of any loan agreement entered into and check for early redemption penalties and those who calculate their loans using Rule of 78
(where interest is calculated on a monthly rather than daily basis) as this will increase the actual cost of the loan;
NCheck any loan agreements for old-fashioned interest calculations such as the rule of 78
(where interest is calculated monthly rather than daily on personal loans) which the DTI plans to abolish, as well as restricting early redemption penalties to one month's interest.
About 70pc of all personal loans are settled early, but under current rules people have to pay a penalty to do so, calculated using the so-called Rule of 78
formula, which tends to favour the lender.
It's due to a clause in the Consumer Credit Act called the Rule of 78
which says you may still be liable for the interest you would have expected to pay over the full term of the loan.
But the notorious Rule of 78
, which hits millions of borrowers, won't go until next summer.
If you think you might want to swap lenders again in future, avoid ones that charge early redemption penalties or use a tricky calculation called the Rule of 78
to increase the amount you pay if you settle early.
It does use the Rule of 78
calculator -like many other lenders -on early repayments, he says, but will not levy redemption charges.
You should also bear in mind that under an obscure clause called the Rule of 78
, even if you are able to pay the debt off early, you may still have to pay the interest you would have had to pay if the loan ran for its full term.