Stop the Pitfalls on loans in 2009 by Jim Williams
This chart could have looked like this in 1997 when the IRS on bulletin No.1997-33 required all banks to stop using the
Rule of 78’s of course they continued until 1999 before most of them was able to change this method of calculating interest. I would say the above chart would show in blue how many where using pre-computed loans with the Rule of 78’s rebate.
Advice-loans.net says only ask for Simple interest loans, that is for everything, mortgages, cars, boats anything that you are financing.
Definition of Simple Interest: Under the United States Rule, interest computed only on the principal balance, without compounding. Simple interest computation is the basis of variable rate consumer lending, an also is used widely in mortgage lending. When interest payments on loans are calculated on a simple interest basis, the borrower pays finance charge on the principal balance actually used.
Is precomputed loans made today? Of course, many car dealers small loan companies float your note car lots. There is also loan companies making Precomputed loans with the rule of 78’s rebate, why because it is so profitable and is not govern by the FDIC. Some States such as Louisana has loan laws that allow 36 APR’s. Tennessee small loan companies are allowed a nominal rate of 24% with a 4% on the total note fee, this fee that is non refundable.
Definition of Add-on Interest: A method of calculation interest which involves multiplication of an annual interest factor times the original principal amount of the loan times the term of the loan in years. For example 7% add-on charge on a $1,000.00 dollar loan repayable over 3 years would result in a dollar amount of interest equal to $210.00 (.07 x 1,000.00 x 3). Prior to Truth-in –Lending the example rate would have bee quoted to a borrower as 7% when in fact the true annual percentage rate is much higher (just a little under 13% APR).
Are add-on interest loans made today? Of course, but not by banks, look for these especially found in the financing of autos.
Definition of Discount Interest: Another method calculating interest by deducting the interest on an annual basis in advanced. Just like the previous example the borrower is quoted “We can give you a 6% discount rate on your loan for 3 years” which will yield that institution around 18%APR.
Are discount loans made today? Of course, actually some banks still are allowed to do this in some states.
We hope you find the reading in Advice-loans.net not only interesting but helpful when you are making important decisions using your money.
Please remember to ask for simple interest when borrowing money!
Jim Williams
1-19-2009