Financial News: Car buyers get better deal with abolishment of Rule of 78
This is the definition for Rule of 78 as per Investopedia:
What Is the Rule of 78?
” The Rule of 78 is a method used by some lenders to calculate interest charges on a loan. The Rule of 78 requires the borrower to pay a greater portion of interest in the earlier part of a loan cycle, which decreases the potential savings for the borrower in paying off their loan. Do read the full defintion and more explanation here at investopedia.com “
Meanwhile, do read the latest news here:
Article in themalaysianreserve.com Car buyers will stand to get a better deal once the so-called Rule of 78 in the Hire Purchase Act 1967 (HPA) is dropped. This will especially benefit car owners who decide to sell their car way before the end of their financing tenure.
This is one major change being proposed by the Consumer Credit Oversight Board (CCOB) Task Force that aims to get the proposed CCA enacted in the fourth quarter of this year.
Among the businesses impacted are those carrying on buy now pay later (BNPL) activities, leasing and factoring services, debt collection agencies (DCA), impaired loan buyers (ILB) and debt counselling and management services (DMA).
In a statement, Bank Negara Malaysia (BNM) assistant governor, who heads the CCOB Task Force, Abu Hassan Alshari Yahaya said it is critical that credit providers and credit service providers are regulated and conform to high professionalism or conduct standards. The article is a long one and hae a lot of details. Article in themalaysianreserve.com
Another explanation
Briefly, if we have a loan of 9 years for example, most of the interest would have been paid by the borrower in the earlier part and assuming we want to finish paying for it on the second half of the loan period, we have already been billed most of the interest already. This is also reason why I think stretching loan to its maximum limit is okay if we could use the lower repayment better by reinvesting it.
Anyway, Rule of 78 is why many borrowers claim that this is super unfair to them. Just need to also note at the same time that this is also one reason why some lenders are able to offer a low rate for the loan yeah. They could get more in the beginning and the borrowers could pay less per month but over a longer period of time. Anyway, we will see how this will affect the lendera and the borrowers. Competition for more customers would help to push lenders to be willing to take a lower margin.
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