The six repayment plans, compared
A loan in LoanCompass is either a single due date or one of six monthly repayment plans. The plan does not change the interest rate — it changes when the principal comes down, and that alone can nearly double what a loan costs over the same term at the same rate.
Same loan, six plans
Every figure below is $10,000.00 lent for 12 months at 2% per month, run through each plan. Only the plan differs.
| Plan | First payment | Last payment | Total interest | Total repaid |
|---|---|---|---|---|
| Monthly amortization | $945.60 | $945.55 | $1,347.15 | $11,347.15 |
| Diminishing balance | $1,033.33 | $850.00 | $1,300.00 | $11,300.00 |
| Fixed principal + interest | $1,033.33 | $850.04 | $1,300.00 | $11,300.00 |
| Interest-only balloon | $200.00 | $10,200.00 | $2,400.00 | $12,400.00 |
| Add-on / flat rate | $1,033.33 | $1,033.37 | $2,400.00 | $12,400.00 |
| Bullet / lump sum | $0.00 | $12,400.00 | $2,400.00 | $12,400.00 |
$1,300.00 against $2,400.00 — the diminishing balance plan costs that much in interest, the bullet / lump sum plan that much, on an identical principal, term and rate. The gap is not a pricing trick: plans that charge interest on the declining balance stop charging for principal that has already been repaid, and plans that fix the interest up front never do.
Interest on the declining balance
Three plans compute interest each month on what is still owed. They cost the least, because every payment shrinks the base the next month's interest is charged on.
Monthly amortization — equal payments
The plan a bank loan usually uses. One payment size for the whole term, solved so the loan lands exactly on zero. Early payments are mostly interest and late ones mostly principal, but the amount leaving the borrower's account never changes.
Month by month
Month 1 of the scenario above: pay $945.60, of which $200.00 is interest (2% of $10,000.00) and the rest comes off principal, leaving $9,254.40. Month 2 is the same payment, but only $185.09 of it is interest, because the balance is smaller.
Choose it when the borrower budgets around a fixed monthly figure. It is the easiest plan to keep to and the easiest to explain.
Diminishing balance — a fixed slice of principal, plus interest
The principal is divided evenly across the term and interest is added on top of whatever is still outstanding. Payments start highest and fall every month.
Choose it when the borrower can absorb a heavier start. In the scenario it is the cheapest of the six — principal comes down fastest, so the least interest is ever charged.
Fixed principal + interest
Arithmetically the same as diminishing balance — a fixed principal slice plus interest on the remainder — and it produces the same total. It exists as a separate option because it is the way many private lenders write the terms down, and a plan that matches the words you agreed on is a plan you will not mis-record.
Interest fixed up front, or deferred
The other three never reduce the base. They all cost $2,400.00 in the scenario — 2% of the full $10,000.00, twelve times over — regardless of what has been repaid along the way.
Interest-only, with a balloon
Monthly payments cover interest only ($200.00 a month here); the entire principal falls due in the final month, making the last payment $10,200.00.
Choose it when the borrower is genuinely expecting a lump sum — a sale, a bonus, a harvest — on a date they can name. Choose something else if the balloon is a hope rather than a date.
Add-on / flat rate
Total interest is computed once against the original principal and spread evenly across the term, so the payments are level like amortization but cost $1,052.85 more over the year on identical terms.
A flat rate always sounds cheaper than it is: “2% a month” on a flat plan is not the same 2% as on an amortizing plan, because you keep paying it on money you have already given back. When someone quotes you a flat rate, compare the total repaid, never the percentage.
Bullet / lump sum
Nothing is scheduled until maturity, when principal and all accrued interest fall due together — $12,400.00 in one payment.
Choose it when the loan is short and informal enough that a schedule would be theatre. Be aware that it gives you no early signal: with no monthly payment, nothing tells you the borrower is in trouble until the whole thing is due.
Or no plan at all
A loan does not need a monthly plan. Recording an amount and a single due date is often the honest description of what happened, and it is the fastest thing to enter. If you set a monthly interest rate on it, the loan accrues interest once the due date passes; if you do not, the balance simply sits there until it is paid.
Changing your mind later
The term and the rate on a loan can be edited after it is created. The schedule recalculates from the new terms and every repayment you have already recorded stays exactly as recorded — editing terms never rewrites history. What it does change is the plan the remaining balance is measured against, so a loan that read “on track” may read “ahead” or “behind” afterwards.
Try it with your own numbers
The free calculators run the same engine as the table above, with no account needed: amortization, diminishing balance, interest-only balloon and flat rate against reducing balance.
Keep reading
- Interest rates are monthlyEvery rate in LoanCompass is per month, not per year. What that means for the figure you type in.
- OverpaymentsWhere the extra money goes when someone pays more than the installment, and what it does to the schedule.
- Late paymentsHow interest accrues on an overdue loan, once per month, and why it compounds on the balance rather than the principal.
- Recording loans and repaymentsAdding a person, writing down a loan you already made, logging repayments, and correcting a mistake.
Stop recalculating this by hand
LoanCompass keeps the schedule, the repayments and the running balance for every loan you have made, so the figures on this page stay current without you rebuilding them. It is free while in early access, and no money moves through it.