Loan repayment methods compared
Borrowing the same amount at the same rate can cost very different amounts depending on how you repay. Here are the three common methods, compared with real numbers.
Published · Guides
The three methods
- Equal installments (standard amortization): the same payment every month. Early payments are mostly interest; later ones are mostly principal.
- Equal principal: the principal is split evenly over the term and interest is charged on what remains, so payments start highest and fall every month.
- Interest-only (bullet): you pay only interest during the term and repay all the principal at the end.
Example: $100,000 at 4.5% for 30 years
| Method | Monthly payment | Total interest |
|---|---|---|
| Equal installments | $506.69 (same every month) | about $82,407 |
| Equal principal | $652.78 in month 1 → $278.82 in the last month | about $67,688 |
| Interest-only | $375 interest per month, then $100,000 at the end | $135,000 |
Equal principal costs the least interest and interest-only the most, because the faster the principal falls, the less interest accrues. These figures assume a fixed rate and no early repayment.
Which one fits you?
- You want a predictable budget: equal installments are easiest to manage and the most common choice for mortgages.
- You can afford higher early payments and want to minimize interest: equal principal wins.
- You borrow briefly and expect a lump sum soon: interest-only can work, but only with a solid plan to repay the principal at maturity.
Things to keep in mind
- Real loans vary with floating rates, grace periods and prepayment fees; read your lender’s terms.
- Monthly figures can differ by a few cents depending on rounding.
- Enter an amount, rate and term in the AlphaKit loan calculator to see the monthly payment and total interest for each method, plus a month-by-month repayment schedule.