Rule of 78 First Period Calculations

Following examples show how NLS calculates short and long first periods on a rule of 78 loan.

Short First Period

Loan Detail:

Term: 12 months
Loan Origination: 1/15/2016
First Payment: 2/1/2016

The first period is only 17 days long so the value determined by the rule of 78 for the first period is further multiplied by the quotient of the days in the period divided by the full number of days in the period (which is 30 days for monthly loans).

This results in the denominator used in the interest calculation for each period as 72.8.

1	1/15 – 1/31
2	2/1 – 2/29
3	3/1 – 3/31
4	4/1 – 4/30
5	5/1 – 5/31
6	6/1 – 6/30
7	7/1 – 7/31
8	8/1 – 8/31
9	9/1 – 9/30
10	10/1 – 10/31
11	11/1 – 11/30
12	12/1 – 12/31

Example

If the total interest on a loan with a term of 12 months is $15.20, the interest for the short first period is calculated as:

(rounded)

∴ 1.42 ÷ 17 days = 0.08352 per day.

For the second period:
(rounded)

∴ 2.30 ÷ 29 days = 0.07920 per day.

Long First Period

Loan Detail:

Term: 12 months
Loan Origination: 1/15/2016
First Payment: 4/1/2016

The first period is adjusted as 1/15 to 3/31. This is further broken down into three segments in this period; 1/15 to 1/31, 2/1 to 2/29 (leap year), and 3/1 to 3/31. Because there are only 17 days in the January segment, it is further multiplied by the quotient of the days in the period divided by the full number of days in the period (which is 30 days for monthly loans).

So with the long first period the denominator used in the interest calculation for each period is 96.8.

1	1/15 – 1/31 2/1 – 2/29 3/1 – 3/31
2	4/1 – 4/30
3	5/1 – 5/31
4	6/1 – 6/30
5	7/1 – 7/31
6	8/1 – 8/31
7	9/1 – 9/30
8	10/1 – 10/31
9	11/1 – 11/30
10	12/1 – 12/31
11	1/1 – 1/31
12	2/1 – 2/28