Which repayment method costs the least interest?

Equal principal, because the balance falls fastest. It has the highest first payment; equal principal and interest keeps payments level, and a bullet loan is the most expensive of the three at the same rate.

What happens if I repay early?

You save the interest on the remaining balance, but many lenders charge an early-repayment fee, sometimes on a fixed schedule. Ask for the fee schedule before repaying.

Is the monthly rate simply the annual rate divided by 12?

For most consumer loans, yes. The effective annual rate is slightly higher because of monthly compounding — at 3.5% nominal it is about 3.56%.

🏦 Loan Interest Calculator

Calculate monthly payments and total interest from loan amount, interest rate and period.

Loan Amount Annual Interest Rate (%) Loan Period (months)

Three Ways to Repay a Loan

The repayment method decides how much interest you pay even when the rate and term are the same. With equal principal and interest (amortisation) the monthly payment is fixed, so early payments are mostly interest; with equal principal the payment starts high and falls as the balance shrinks; with a bullet loan you pay only interest until the principal falls due at maturity. Total interest is lowest for equal principal and highest for bullet repayment.

Repayment Method Comparison

Equal Principal & Interest

Repay the same total amount each month. Higher interest portion early, higher principal portion later.

Equal Principal

Repay the same principal each month. Total interest decreases as the balance falls.

Bullet Repayment

Pay only interest during the loan period, repay principal at maturity. Highest total interest.

For equal principal and interest, monthly payment = P × i ÷ (1 − (1 + i)^−n), where P is the loan amount, i the monthly rate (annual ÷ 12) and n the number of months. Equal principal pays P ÷ n of principal each month plus interest on the remaining balance.

Worked Example

$30,000 at 3.5% over 36 months gives about $880 a month with equal principal and interest.

The same loan with equal principal payments starts near $921, ends near $836, and costs about $1,619 of interest in total.

What the Comparison Leaves Out

The calculation uses a fixed rate for the whole term and ignores fees, early-repayment penalties, grace periods, rate resets on variable loans and tax relief on interest. It also assumes payments are made exactly on schedule, so a single late payment can change the figures. Use it to compare repayment structures, not as a quote from a lender.

Frequently Asked Questions

Which repayment method costs the least interest?: Equal principal, because the balance falls fastest. It has the highest first payment; equal principal and interest keeps payments level, and a bullet loan is the most expensive of the three at the same rate.
What happens if I repay early?: You save the interest on the remaining balance, but many lenders charge an early-repayment fee, sometimes on a fixed schedule. Ask for the fee schedule before repaying.
Is the monthly rate simply the annual rate divided by 12?: For most consumer loans, yes. The effective annual rate is slightly higher because of monthly compounding — at 3.5% nominal it is about 3.56%.