Rule of 78


According to LoanStreet – The Rule of 78 is one of the most prevalent secrets in the banking industry that is barely understood by the public. This post is about me trying to understand how it works, and hoping to share with you so that you understand and be able to figure out how you can apply it to your financial decision.

Since I got to banking I am in a learning mode. Learning how the banking system work. Being a self-professed technical person, I will try to understand things in a more technical way. Whether for good or bad.

The situation now is that I am buying a new car and deciding how many years should I take up the loan. And since I am not yet eligible for staff loan yet, I need to resort to a conventional loan from other local banks that offer Hire Purchase. So in order to calculate this – I need to understand how the settlement works. Well – fact of the matter the settlement is done by returning back to you the interest that was charge. Do understand that for typical hire purchase here is the formula:


So what this mean is that the interest are charge up front when you take the loan,

Formula (Example).jpg

Question is now, when you terminate your loan, how do you calculate the interest that will be returned? Well – generally its calculated by “Rule of 78”. What this rule essentially says, the borrower will be paying greater part of the interest during the initial part of the loan. I.e, more interest are apportion during the first year versus in the later years. Note that this is different from the “Daily Rest” or “Monthly Rest” types loan in which the interest are always calculated based on the outstanding balance prorated to the period.

Example “Daily Rest”, the interest rate is divided by 365 days and then applied daily based on the outstanding amount that the borrower has. This should be better because as one pay earlier, the outstanding amount will be less and therefore the knocking off the principal amount is faster. Note that when you pay, interest will be the first to be paid before the principal. Principal is the original loan amount. So if one is smart, you will be able to “game the system” and able to pay less interest if you know when to pay your loan.

Back to Rule of 78. So the question is how do you calculate the weightage? Lets take an example above, 5 years loan. A lender would make a sum of all the months:


So basically what happened is this, the way the interest is calculated is in reverse. I.e. interest for the first month is based on the assumptions above:

interest calc.jpg

Which make it quite interesting because if the weightage of the interest is fair, then the total interest that will be refunded will be a lot less if you were to settle earlier.

So what I did in order to calculate how long is my loan duration is for me to plot a table of the settlement price versus the depreciation of the car and eye ball for a sweet point in which I am willing to sell off the car. I will explain that in another post. But I hope you do get what I mean by Rule of 78.

You may think that this may not seem fair for the borrower, but you need to understand that for a bank, each of the loan has a lot of cost thats associated to it. From creating the infrastructure to manage the balances to hiring sales people to push the loans. And thus they need to be able to make money out of the lending that they do to their customers.

I hope the post is somewhat beneficial. Remember please do read the terms and conditions of your hire purchase or loans and see if Rule of 78 applies. They may not say specifically that they use Rule of 78, but you can see that the calculation is similar.

rule of 78.jpg

Taken from here  Maybank. Link may not work… 🙂

Note; I am not a financial advisor therefore I am not responsible for any inaccuracy of the information posted here. Please do your own research and consult professionals if you need any advice regarding your financials. I wrote this post to poke my readers curious minds 🙂

Maybank Cardless Withdrawal

Fun Posts

In the past year, I’ve been losing my memory! Or rather been a bit too careless. There have been many instances where I left my wallet at home, resulting me driving around illegally without license, in addition to not having cash at all! This is really bad – serious.

Yesterday – I went out for brunch/lunch together with the rest of my family – thank god for the not so clear photo taken by the waiter. Hehe. I usually don’t like to have my photo taken in public, but I guess it is what it is:)


After reaching Empire Shopping Gallery, I realised that my wallet was not with me. Unlike previous incidences, I am pretty sure that I didn’t carry it. It’s probably is still in my motorcycle jacket (and it was). I guess no money. I keep on telling my sister that I have no money to pay for lunch, and one of them will need to pay for it 🙂

Anyway – to cut things short, whilst waiting for them to come (yes I was on time which is 11.30am), I decided to flip around and remembered my ex-colleague (Amran) told me about the cardless withdrawal with Maybank. So i decided to trigger this thru my Maybank2u app on my phone and transfer the monies. Maximum of 300 bucks, which is more than enough. Immediately, I receive SMS from them – it’s way faster than TAC!



The first SMS above I received, is a notification to yourself. Where I am supposed to pass the 6 digit code to your friend (which is in this case is myself!). The second SMS is a 16/17 digit code that the recipient receives 🙂

After getting the SMS-es, I headed over to ATM and withdraw the cash!


First is to put in the mobile number, followed up by the 16/17 digits D


Next, I put in the 6 digit code… wooo whoo.


The money magically appeared!



At the same time, I also received a notification of the cash has been withdrawn. Pretty good.

Seriously – I think as we move on, this is the way to go. In fact, why do I need an ATM card, why can’t I just use my phone to withdraw cash ALL THE TIME. It’s so easy – seriously 🙂


Self deposit coins machine

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Generally in my daily life, I really hate carrying coins. In fact, most of the occasions I would leave the coins with the cashier as a form of gratitude aka tips.  Actually, I am lazy to carry the coins around. You know how difficult it is to bank in coins?

Before this

  • You have to carry the coins to the bank(heavy)
  • Pickup a number, hopefully you don’t have to wait.
  • Get questions by the cashier – are you customer?
  • Ini ada caj, ok ka?
  • Wait for hours for them to count the coins.
  • Get scolding for having all sorts of coins.


  • No need queue, its a self deposit machine.
  • Hopefully not a lot of people come to deposit their coins.
  • Dump in the coins without the hassle of dealing with the cashier.
  • Get the thrill of winning a jackpot as the amount continue to add up.


  • You have to do it yourself, tiring weih.
  • You have to stand up!
  • Be the centre of attention,  krung krang krung krang… And everybody watches you.

There are obviously some issues with the self deposit machine but honestly the drawbacks are minor, and does not post any major issues. I now need to figure out a more productive way to keep the coins, and bank in regularly to avoid carrying too heavy of a coin. Though I will miss the jackpot feeling. Heheh.


DSC 0077 Screen showing what you need to do. There are only two buttons!


DSC 0075

As you load it.. you can see it counts! Here is a quick video… it has been made to slow down..


DSC 0078

There are two receipts that you get after toying around with the machine. The first voucher on the left you need to fill up your account details and pass it to the cashier the SAME DAY. Your account will be updated soon after. The voucher on the right is for your copy 😀