Editing Interest (section)

==Rules of thumb==
===Rule of 78s===
{{main|Rule of 78s}}
In the age before electronic computers were widely available, flat rate consumer loans in the United States of America would be priced using the Rule of 78s, or "sum of digits" method. (The sum of the integers from 1 to 12 is 78.) The technique required only a simple calculation.

Payments remain constant over the life of the loan; however, payments are allocated to interest in progressively smaller amounts. In a one-year loan, in the first month, 12/78 of all interest owed over the life of the loan is due; in the second month, 11/78; progressing to the twelfth month where only 1/78 of all interest is due. The practical effect of the Rule of 78s is to make early pay-offs of term loans more expensive. For a one-year loan, approximately 3/4 of all interest due is collected by the sixth month, and pay-off of the principal then will cause the effective interest rate to be much higher than the APR used to calculate the payments.<ref name="bankrate.com">{{Cite web |url=http://www.bankrate.com/finance/auto/rule-of-78-watch-out-for-this-auto-loan-trick.aspx |title=Rule of 78 – Watch out for this auto loan trick<!-- Bot generated title --> |access-date=2016-11-28 |archive-date=2016-11-29 |archive-url=https://web.archive.org/web/20161129144118/http://www.bankrate.com/finance/auto/rule-of-78-watch-out-for-this-auto-loan-trick.aspx |url-status=live }}</ref>

In 1992, the [[United States]] outlawed the use of "Rule of 78s" interest in connection with mortgage refinancing and other consumer loans over five years in term.<ref>{{usc|15|1615}}</ref> Certain other jurisdictions have outlawed application of the Rule of 78s in certain types of loans, particularly consumer loans.<ref name="bankrate.com"/>

===Rule of 72===
{{main|Rule of 72}}
To approximate how long it takes for money to double at a given interest rate, that is, for accumulated compound interest to reach or exceed the initial deposit, divide 72 by the percentage interest rate. For example, compounding at an annual interest rate of 6 percent, it will take 72/6 = 12 years for the money to double.

The rule provides a good indication for interest rates up to 10%.

In the case of an interest rate of 18 percent, the rule of 72 predicts that money will double after 72/18 = 4 years.
:<math>1.18^4 =1.9388 \text { (4 d.p.)}</math>

In the case of an interest rate of 24 percent, the rule predicts that money will double after 72/24 = 3 years.
:<math>1.24^3 = 1.9066 \text { (4 d.p.)}</math>