What is one financial implication of using the Rule of 78s?

Using the Rule of 78s affects the timing of interest payments in a loan, leading to higher interest payments at the beginning of the loan term. This rule, which is often used for calculating precomputed interest on loans, results in a method where more interest is allocated to the earlier months of the loan compared to the later months. Essentially, if a borrower pays off a loan early, they may not receive a proportional reimbursement of the interest paid upfront, thus incurring more costs initially. Therefore, borrowers experience a financial impact where they pay more in interest at the start of the loan compared to later payments, which is a significant consideration for anyone opting for this type of interest calculation method.