Early settlement
Loan Early Settlement Calculator (Rule of 78)
Settling a Malaysian car or personal loan early? See exactly how much you'd pay today, how much interest the Rule of 78 rebate gives back, and what your flat-rate loan really costs as an effective annual rate.
How it's calculated
Total interest (flat rate) — I = principal × annual flat rate × tenure in years. Flat-rate loans charge interest on the original principal for every month, so the total is fixed at signing.
Equal monthly instalment — M = (principal + total interest) ÷ tenure. The same amount every month, with the interest portion front-loaded.
Rule of 78 rebate — interest is allocated in a "sum-of-digits" pattern: month 1 absorbs the largest slice, month n the smallest. The rebate at settlement is the sum of the digits for the unpaid months ÷ the sum of all digits. Formula: rebate = total interest × (n−k)(n−k+1) ÷ (n × (n+1)).
Settlement = remaining instalments (n−k) × M, minus the interest rebate, plus any early-settlement penalty.
Effective rate (APR) — solved numerically from M = P × i (1+i)^n ÷ ((1+i)^n − 1), then annualised. For Malaysian flat-rate loans this is typically ~1.7–1.9× the headline rate.
Common questions
Why is the rebate not just half the remaining interest?+
Because of the Rule of 78 (sum-of-digits) allocation. Interest is front-loaded — month 1 of a 60-month loan absorbs 60/1,830 of the total interest, while month 60 absorbs only 1/1,830. Settle at month 12 and roughly 64% of the total interest is still unpaid and rebated. Settle at month 48 and only ~4% is left to rebate.
Do Malaysian banks really use the Rule of 78?+
Maybank, CIMB, RHB, Public Bank, and most other Malaysian banks use the Rule of 78 (also called the sum-of-digits method) on conventional flat-rate personal loans and hire-purchase car loans. Islamic financing facilities use different rebate rules (e.g. Ibra) — this calculator does not model those. Newer flexible-rate products may use a proportional or actuarial method.
Is there a penalty for early settlement?+
It depends on your loan agreement. Many Malaysian personal loans charge 2–3% of the outstanding balance as a penalty if settled within the first 12–24 months; some waive it after that. Hire-purchase car loans usually waive the penalty entirely. Check the early-settlement clause in your loan letter — and enter the penalty in RM to see the net saving.
What is the "effective rate" the calculator shows?+
A flat 7% per year on a 5-year loan sounds cheap, but a reducing-balance loan paying the same monthly amount would actually be priced at around 12.5% per year. The effective rate (APR) is the apples-to-apples comparison number. Always compare loans on effective rate, not the headline flat rate.
Why does the calculator say my final figure is approximate?+
Two reasons. First, some banks deduct a small administrative fee from the rebate (commonly RM50–RM200) that this tool does not model. Second, the exact settlement date inside a month matters — a settlement on day 5 vs day 25 of the same month is treated differently by each bank. Always request the bank's written settlement quotation before paying.
Should I settle early?+
If the saved interest minus the penalty is meaningfully positive — and the cash would not earn more elsewhere — settling early is usually worth it. The earlier in the tenure, the better, because the Rule of 78 front-loads interest. Past the loan's halfway point the rebate shrinks fast and settling stops being attractive.
Authoritative sources
- Hire-Purchase Act 1967 (Federal Government Gazette, Malaysia)Statutory basis for the early-settlement rebate (§ 15A) on hire-purchase loans in Malaysia.
- Bank Negara Malaysia — Disclosure on Personal FinancingDisclosure standards for personal financing, including early-rebate calculations.
- KCLau — The Rule of 78 and How It Impacts Your Car Loan SettlementsMalaysian-context explainer on Rule of 78 and how it affects car loan settlements.
- Wikipedia — Rule of 78sDerivation of the sum-of-digits formula and its rationale.
Rebate formula based on the Hire-Purchase Act 1967 and standard Malaysian bank practice. Your bank's settlement quotation overrides this estimate. Informational only — not financial or legal advice.