Diminishing balance loan calculator

On a diminishing balance plan the principal is divided evenly across the term and interest is added on whatever is still outstanding, so payments start highest and fall every month. It is the cheapest of the six plans over the same term and rate, because principal comes down fastest.

Diminishing balance calculator

Nothing is sent anywhere — the whole calculation runs in your browser.

Amount lent

Currency

Term (months)

1 to 360 months.

Interest rate (% per month)

Monthly, not annual. Leave empty for an interest-free loan.

First payment: $1,033.33
Last payment: $850.00
Total interest: $1,300.00
Total repaid: $11,300.00

Repayment schedule: payment, interest and remaining balance for each month.
Month	Payment	Interest	Balance after
1	$1,033.33	$200.00	$9,166.67
2	$1,016.67	$183.33	$8,333.33
3	$1,000.00	$166.67	$7,500.00
4	$983.33	$150.00	$6,666.67
5	$966.67	$133.33	$5,833.33
6	$950.00	$116.67	$5,000.00
7	$933.33	$100.00	$4,166.67
8	$916.67	$83.33	$3,333.33
9	$900.00	$66.67	$2,500.00
10	$883.33	$50.00	$1,666.67
11	$866.67	$33.33	$833.33
12	$850.00	$16.67	$0.00

Why the payments fall

The principal portion is fixed — the amount lent divided by the number of months — and never changes. The interest portion is the monthly rate applied to the balance still outstanding, and that balance drops by the same fixed slice every month. So each payment is a little smaller than the one before it, by exactly the interest on one slice of principal.

$10,000 over 12 months at 2% per month

Principal slice: $833.33 a month, every month.
Month 1 adds $200.00 interest — 2% of the full $10,000.00 — for a first payment of $1,033.33.
Month 12 adds interest on the last slice only, for a final payment of $850.00.
Total interest $1,300.00, total repaid $11,300.00 — the lowest of any plan on these terms.

The trade-off

Cheapest overall is not the same as easiest to pay. The first payment here is $1,033.33 against $945.60 on an amortizing plan — about $87.73 more in the month the borrower is usually least liquid, which is typically the month they came to you. The saving is $47.15 across the whole year.

That is the actual decision: a heavier start in exchange for a smaller total. If there is real doubt about the first few months, the cheaper plan on paper is the one more likely to be missed, and a missed payment on a loan that carries a rate is more expensive than the difference you were trying to save.

Fixed principal + interest is the same plan

LoanCompass offers “fixed monthly principal + interest” as a separate option. Arithmetically it is this plan — a fixed principal slice plus interest on the remainder — and it produces the same total to within rounding. It exists because that is how many private lenders write the terms down, and a plan that matches the words you agreed on is a plan you are less likely to mis-record.

Where it suits

Business or income-producing loans where the borrower's cash flow is strongest early, or where the thing bought with the money starts earning immediately.
Short terms — over three or six months the falling payment is barely noticeable and the interest saving is straightforward.
Borrowers who want the debt gone and are willing to feel it up front rather than pay for comfort.

Keep reading

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