How to Calculate a U.S. Rule Loan

An Explanation of Negative Amortization

To set your preferred currency and date format, click the “$ : MM/DD/YYYY” link in the lower right corner of any calculator.

A Step-by-Step Tutorial
Tutorial 16

The U.S. Rule is defined in the United States Consumer Financial Protection Bureau’s (formerly the Fed’s) Regulation Z, also known as the Truth in Lending Act:

3. U.S. Rule. The U.S. Rule produces no compounding of interest in that any unpaid accrued interest is accumulated separately and is not added to principal. In addition, under the U.S. Rule, no interest calculation is made until a payment is received.

Under the U.S. Rule, only the unpaid principal balance (excluding unpaid interest) is used as the basis for calculating interest due. Furthermore, if there are no periods of negative amortization, there is no difference between normal amortization and amortization under the U.S. Rule. (Negative amortization occurs when the loan balance increases despite payments being made—that is, when the payments are less than the interest due.) The Ultimate Financial Calculator supports all of these concepts.

All users should work through the more detailed first tutorial to understand the Ultimate Financial Calculator’s (UFC) basic concepts and settings.

To create an amortization schedule that adheres to the U.S. Rule and shows a separate interest balance, follow these steps:

Set Schedule Type to Loan.
- Alternatively, click the button to clear any previous entries.
Click , then select Rounding Options. Set “Rounding” to Adjust last amount to reach “0” balance.
In the header section, make the following settings:
1. For Calculation Method, select U.S. Rule.
2. Set Initial Compounding to Monthly.
3. Enter 6.0 for Initial Interest Rate.

In row 1 of the cash‑flow input area, create a “Loan” series.
1. Set the “Date” to July 1, 2024.
2. Set the “Amount” to 35,000.00.
3. Set the “# Periods” to 1.
  - Note: Since the number of periods is 1, you will not be able to set a frequency. If a frequency is set, it will be cleared when you leave the row.

Move to row 2 of the cash‑flow input area.
1. Select Payment for the “Series”.
  - In this example, we will assume a 5‑year loan (60 monthly payments).
  - The first six payments will be $150.00, which is less than the interest due.
2. Set the “Date” to August 1, 2024.
3. Set the “Amount” to 150.00.
4. Set the “# Periods” to 6.

Move to row 3 of the cash‑flow input area.
1. Select Payment for the “Series”.
2. Set the “Date” to February 1, 2025.
3. Set the “Amount” to Unknown by typing U.
4. Set the “# Periods” to 54.

Your calculator will now look like this (Fig. 1):

Click . The result is $744.35. See Fig. 2.

U.S. Rule periodic payment — Fig. 2—U.S. Rule calculated periodic payment.

To view the impact of the U.S. Rule, display the amortization schedule:
1. Click . See Fig. 3.

U.S. Rule amortization table — Fig. 3—U.S. Rule amortization schedule showing the unpaid interest balance.
(This is called negative amortization when the loan balance increases even though payments are being made.)

Points to note about the schedule:

Notice the negative amortization—the loan balance increases because the first six payments are less than the interest due.
The unpaid interest is tracked as a separate balance, as required by the U.S. Rule.
Although the loan balance is growing, the interest calculated for each period remains constant at $175.00.
You may want to compare this schedule to one created using the same inputs with the Calculation Method set to Normal.

The U.S. Rule is considered consumer-friendly because it reduces the interest that would otherwise accrue. However, it only affects interest calculations when negative amortization occurs, and even then, the difference is often minimal. You can use the Ultimate Financial Calculator to compare both methods and see the results for yourself.

Back to the Ultimate Financial Calculator.

Ultimate Financial Calculator Promotional Section