Equal Payments vs Equal Principal: Loan Repayment Types
Compare equal payments, equal principal and interest-only loans, see how total interest differs, and test your own scenarios with a free loan calculator.
When you take out a loan, the interest rate gets most of the attention. How you pay the loan back also matters. It changes the size of your monthly payment, how fast the balance falls, and how much interest you pay in total. Two loans with the same amount, rate and term can cost quite different amounts depending on the repayment type.
This guide is for anyone choosing a mortgage, car loan, student loan or personal loan who sees terms like “equal payments,” “equal principal” or “interest-only” and isn’t sure what they mean. We’ll explain each one in plain language, compare them with rough example figures, and show how to run your own numbers.
The three common repayment types
Every loan payment is made of two parts: principal (paying back the money you borrowed) and interest (what the lender charges you for borrowing it). Interest is usually calculated on the balance you still owe. That’s why the repayment type matters: the faster the balance comes down, the less interest builds up.
Equal payments (amortizing)
With an amortizing loan, you pay the same total amount every month for the whole term. At the start, most of each payment goes to interest because the balance is large. As the balance shrinks, more of each payment goes to principal. Many mortgages and car loans work this way.
The main advantage is predictability. You know exactly what leaves your account each month, which makes budgeting easy.
Equal principal
With equal principal, you repay the same amount of principal every month, plus interest on whatever balance is left. Because the balance drops by a fixed amount each month, the interest part gets smaller over time, and so does your total payment.
The result is that your first payments are the highest and your last payments are the lowest. You pay down the loan faster in the early years, so less interest adds up overall.
Interest-only
With an interest-only loan, you pay only the interest for a set period, sometimes for the whole term. The balance doesn’t go down during that time. At the end of the interest-only period, you either start repaying principal (often with higher payments) or repay the full amount in one lump sum, sometimes called a balloon payment.
Monthly payments are the lowest of the three, but you pay the most interest in total because the balance stays at its full size.
How total interest compares
Here is a simplified example. It uses a loan of 100,000 (in any currency) at a 5% annual rate over 10 years, with monthly payments and no fees. All figures are approximate and for illustration only. Your lender’s figures will depend on its exact calculation method.
| Repayment type | First monthly payment | Last monthly payment | Approx. total interest |
|---|---|---|---|
| Equal payments (amortizing) | about 1,060 | about 1,060 | about 27,300 |
| Equal principal | about 1,250 | about 840 | about 25,200 |
| Interest-only (full term, balloon at end) | about 417 | about 417 + 100,000 balloon | about 50,000 |
A few things stand out:
- Equal principal costs the least in total interest. In this example it saves roughly 2,000 compared with equal payments, because the balance falls faster early on.
- Equal payments costs a little more but feels steadier. The payment never changes, and the first payment is noticeably lower than with equal principal.
- Interest-only has the lowest monthly payment but the highest total cost. You also still owe the full amount at the end.
The gap between the types grows with higher rates and longer terms. On a 30-year mortgage, the difference in total interest can be large.
Which type suits whom
| If you… | A good fit might be |
|---|---|
| Want a stable, predictable budget | Equal payments |
| Can afford higher payments now and want to pay less interest overall | Equal principal |
| Expect your income to rise, or plan to sell the asset soon | Interest-only (with caution) |
| Are close to the limit of what you can afford each month | Equal payments, since the first payment is lower than equal principal |
| Want to be debt-free faster in practice | Equal principal, or equal payments with extra repayments |
Keep in mind that not every lender offers every type. Some loan products only come with one option.
How to compare scenarios with Deftivo
The Deftivo loan calculator lets you put the repayment types side by side with your own numbers. It runs in your browser, so the figures you enter aren’t sent anywhere.
- Enter the loan amount and the annual interest rate.
- Enter the term in years or months.
- Choose the repayment method.
- Read the monthly payment and totals, and open the full schedule if you need it.
To compare, keep the amount, rate and term the same and switch only the repayment method. Write down the monthly payment and total interest for each. Then try changing one thing at a time, such as a shorter term or a slightly different rate, to see which choices have the most effect.
The full schedule is worth opening. It shows how each payment splits between principal and interest month by month, so you can see exactly how slowly or quickly the balance falls.
If you want to express the difference as a percentage, for example “how much less interest does equal principal cost?”, use the percentage calculator:
- Pick the question that matches what you want to know.
- Enter the two numbers.
- Read the result — it updates as you type.
Fees are a separate cost
A loan calculator shows principal and interest. Real loans often have other costs as well, such as:
- Arrangement or origination fees charged when the loan is set up
- Early repayment fees if you pay off the loan ahead of schedule
- Insurance the lender may require
- Account or admin fees charged monthly or yearly
These aren’t part of the interest calculation, but they add to what you pay. When comparing offers, ask each lender for the total cost including fees. Many lenders also quote an annual percentage rate that includes some fees, which can help you compare offers more fairly.
Tips and pitfalls
- Look at the first payment, not only the total. Equal principal saves interest, but its first payments are the highest. Make sure you can afford them comfortably.
- Plan for the end of an interest-only period. Know what your payment will become, or how you’ll repay the lump sum, before you sign.
- Check for early repayment rules. Paying extra on an equal-payments loan can bring its cost closer to equal principal, but only if extra payments are allowed without large penalties.
- Variable rates change everything. If your rate can move, today’s schedule is only an estimate. Try a few higher rates in the calculator to test your budget.
- Use the lender’s figures for final decisions. Calculators give good estimates, but rounding, day-count methods and fees can make the lender’s numbers slightly different.
FAQ
Which repayment type has the lowest total interest?
Equal principal usually has the lowest total interest of the three, because you repay the balance fastest in the early years. Equal payments comes next, and interest-only costs the most. The exact gap depends on your rate and term.
Why is my first equal-principal payment so much higher?
Each payment includes a fixed amount of principal plus interest on the full remaining balance. At the start the balance is at its largest, so the interest part is too. Payments drop steadily as the balance goes down.
Can I switch repayment types after I take out the loan?
It depends on the lender and the loan agreement. Some lenders allow a switch, sometimes with a fee, while others don’t. Check your contract or ask your lender directly.
Does the loan calculator include fees?
No. The calculator works out principal and interest from the amount, rate, term and repayment method you enter. Add any fees separately when you compare the full cost of different offers.