topher@cyb-eng.UUCP (Topher Eliot) (10/18/85)
A recent posting compared the amount of interest paid if a loan is paid off
early, on the basis of whether the interest is calculated by "fair" methods
(I don't know the correct technical term) or by the rule of 78s. I do not
take issue with that comparison.
However, the article failed to mention that many loan contracts that
specify the rule of 78s also are written such that any early payments that
do not completely pay off the loan do the borrower no good at all in terms
of the amount of interest paid. In other words, when calculating the size
of that final payment to pay off the loan early, any overpayments made
earlier in the loan's history are treated as if they had been made just a
moment ago. So you would be better off putting your money in the bank and
earning interest on it until you have enough to pay off the loan
completely.
Cheers,
Topher Eliot Cyb Systems, Austin, TX (512) 458-6609
{gatech,harvard,ihnp4,nbires,seismo,ucb-vax}!ut-sally!cyb-eng!topher