The “Rule of 78” is the calculation of the interest and principal repayment and the allocation of the two components for each instalment of the loan. In principle, customer’s repayment will be utilized to settle the interest prior to the principal. A larger proportion of the repayment made in the early stages is allocated to settle the interest and finance charges, with a smaller proportion to repay the principal for each instalment of the loan. Such allocation of the repayment will reverse gradually after more instalments have been made, the interest portion will be reduced at the same time while the total interest expenses of the loan will remain unchanged.

In assumption:
A loan amount of HKD200,000 for a tenor of 12 months, at a monthly flat rate of 0.31%.

According to the “Rule of 78”, the denominator of the total interest of a 12-month loan is the sum of loan tenor from 1 to 12 (“sum of loan tenor”) i.e. 78 (12 + 11 + 10 + …. + 1 = 78). The 1st interest payment proportion is 12 / 78; the 2nd interest payment proportion is 11 / 78, etc.

Monthly Interest = Total Interest x interest payment proportion

*The amount is rounded to 2 decimals places.

The calculation of the proportion of interest and principal of loan instalment is as follows:

*The amount is rounded to 2 decimals places.

From the above example, nearly 30% of the total interest of the loan (HKD7,440 x 30% = HKD2,232) is repaid in the interest payment of the first two monthly instalments (HKD1,144.62 + HKD1,049.23 = HKD2,193.85).

The HKD Prime Rate refers to the HKD Best Lending Rate from time to time quoted by CMB Wing Lung Bank Limited, subject to market fluctuations.

CMB Wing Lung Bank’s current HKD Prime Rate: 6.125% p.a.

The above information is for reference only.

Generally speaking, the earlier a borrower makes loan repayment to CMB Wing Lung Bank Limited (“the Bank”), the more outstanding interest payments are likely to be saved. Nevertheless, borrowers should consider the early repayment charges involved before deciding whether to pay off their loans early or not. Even though the monthly repayment amount is the same throughout the loan tenor, more interest will, in general, be included in earlier repayments, and less on principal. In other words, where a borrower has been making repayments as scheduled for some time, the amount of outstanding interest is likely to be small. If the borrower chooses to pay off the loan early at this point of time, the loss may outweigh the gain as the amount of interest saved may not be enough to cover the relevant charges for early repayment. As a smart bank customer, one should first check with the Bank about the total amount involved in early repayment (including outstanding loan balance, early settlement fee, prepayment fee and other fees, etc.) and the amount of outstanding interest. He/she should then compare different scenarios and consider carefully before making a decision of repaying early or not. (For calculations and comparison methods, please refer to Question 5 of this Hot Questions)

Should you have any enquiries, please contact our Loan Services designated hotline: 2616 2823.

Personal instalment loans of CMB Wing Lung Bank includes: CMB Wing Lung Personal Instalment Loan Services, CMB Wing Lung Balance Transfer Loan Services, CMB Wing Lung Micro Enterprise Loan Services, CMB Wing Lung “Easy Pay” Salaries Tax Loan Services and CMB Wing Lung “Easy Pay” Profit Tax Loan Services.

Example (a) - Interest expenses on loan products which is calculated according to the monthly flat rate basis and “Rule of 78”:

In Assumption:
A loan amount of HKD200,000 for a tenor of 12 months, interest rate is calculated at a monthly flat rate of 0.31%;
the Early Settlement Fee is 1% of the approved loan amount or HKD500 (whichever is the higher) and the Prepayment Fee equals to one month’s interest of the outstanding principal.

Scenario 1: Request for early repayment when 2 instalments had been made and 10 instalments are outstanding:

By making early repayment of personal instalment loans of CMB Wing Lung Bank, an Early Settlement Fee and a Prepayment Fee, a total of HKD2,519.62 is charged, whereas the interest incurred for the 10 outstanding instalments is HKD5,246.15.

In the case of Scenario 1 in above, by making early repayment of personal instalment loans of CMB Wing Lung Bank, interest incurred for the outstanding instalments (HKD5,246.15) can be saved, the gain outweighs the loss of Early Settlement Fee and Prepayment Fee by making early repayment of personal instalment loans of CMB Wing Lung Bank (HKD2,519.62). Therefore, under the scenario that 2 instalments had been made, and 10 instalments are outstanding, you SAVE interest expenses by making early repayment of personal instalment loans of CMB Wing Lung Bank.

Scenario 2: Request for early repayment when 10 instalments had been made and 2 instalments are outstanding:

By making early repayment of personal instalment loans of CMB Wing Lung Bank, an Early Settlement Fee and a Prepayment Fee, a total of HKD2,106.29 is charged, whereas the interest incurred for the 2 outstanding instalments is HKD286.15.

In the case of Scenario 2 in above, by making early repayment of personal instalment loans of CMB Wing Lung Bank, interest incurred for the outstanding instalments (HK286.15) can be saved, the gain DOES NOT outweigh the loss of Early Settlement Fee and Prepayment Fee by making early repayment of personal instalment loans of CMB Wing Lung Bank (HKD2,106.29). Therefore, under the scenario that 10 instalments had been made, and 2 instalments are outstanding, you DO NOT SAVE interest expenses by making early repayment of personal instalment loans of CMB Wing Lung Bank.

Table 1:

The above examples are for reference only. The amount is rounded to 2 decimal places.

Example (b) - Interest expenses on loan products which is calculated on a basis of Prime Rate:

In Assumption:
A loan amount of HKD200,000 for a tenor of 12 months, the annualised interest rate is calculated at CMB Wing Lung Bank HKD Prime Rate + 1%;
the Early Settlement Fee is 1% of the approved loan amount or HKD500 (whichever is the higher) and a Prepayment Fee equals to one month’s interest of the outstanding principal.
CMB Wing Lung Bank HKD Prime Rate: 5.25% p.a.
The above information is for reference only.
The annualised interest rate: 5.25% + 1% = 6.25%

Scenario 1: Request for early repayment when 2 instalments had been made and 10 instalments are outstanding:

By making early repayment of personal instalment loans of CMB Wing Lung Bank, an Early Settlement Fee and a Prepayment Fee, a total of HKD2,872.53 is charged, whereas the interest incurred for the 10 outstanding instalments is HKD4,836.33.

In the case of Scenario 1 in above, by making early repayment of personal instalment loans of CMB Wing Lung Bank, interest incurred for the outstanding instalments (HKD4,836.33) can be saved, the gain outweighs the loss of Early Settlement Fee and Prepayment Fee by making early repayment of personal instalment loans of CMB Wing Lung Bank (HKD2,872.53). Therefore, under the scenario that 2 instalments has been made, and 10 instalments are outstanding, you are SAVE interest expenses by making early repayment of personal instalment loans for CMB Wing Lung Bank.

Scenario 2: Request for early repayment when 10 instalments had been made and 2 instalments are outstanding:

By making early repayment of personal instalment loans of CMB Wing Lung Bank, an Early Settlement Fee and a Prepayment Fee, a total of HKD 2,178.15 is charged, whereas the interest incurred for the 2 outstanding instalments is HKD267.46.

In the case of Scenario 2 in above, by making early repayment of personal instalment loans of CMB Wing Lung Bank, interest incurred for the outstanding instalments (HKD267.46) can be saved, the gain DOES NOT outweigh the loss of Early Settlement Fee and Prepayment Fee by making early repayment of personal instalment loans of CMB Wing Lung Bank (HKD2,178.15). Therefore, under the scenario that 10 instalments had been made, and 2 instalments are outstanding, you DO NOT SAVE interest expenses by making early repayment of personal instalment loans of CMB Wing Lung Bank.

Table 2

The above examples are for reference only. The amount is rounded to 2 decimal places.

Should you have any enquiries, please contact our Loan Services designated hotline: 2616 2823.

Personal instalment loans of CMB Wing Lung Bank includes: CMB Wing Lung Personal Instalment Loan Services, CMB Wing Lung Balance Transfer Loan Services, CMB Wing Lung Micro Enterprise Loan Services, CMB Wing Lung “Easy Pay” Salaries Tax Loan Services and CMB Wing Lung “ Easy Pay” Profit Tax Loan Services.