For a borrower looking to end an auto loan early, there isn't a worse way a lender could calculate your payoff amount. The Rule of 78s formula packs extra interest charges into the early months of a loan. Using Rule of 78s, a lender typically collects three-quarters of a loan's interest in the first half of a loan term.The Rule of 78s can only be applied to pre-computed loans that are paid ahead of schedule. Interest on a pre-computed loan is calculated in advance and you're on the hook for every penny of it when you sign. Pay ahead with a pre-computed loan that applies the "Rule of 78s" method to prepayments and you'll be slammed with a penalty, disguised as a rebate.
Using the "Rule of 78s" method, your lender applies more of your previous payments toward interest and less of your previous payments toward principal.