Declining Balance Loan Calculator

Currency

Loan amount

Interest rate, % APR

Term, months

Result

First payment

$26,666.67

Last payment

$16,833.33

Principal in each payment

$16,666.67

Total repaid

$1,305,000.00

Total interest

$305,000.00

Interest if annuity

$334,666.86

Saved vs annuity

$29,666.86

This result is informational only and is not professional advice.

Payments that shrink every month, and the interest that saves

Calculate a loan with a fixed principal share and falling payments, and see how much less interest it costs than an equal-payment annuity.

In a declining-balance schedule the principal portion stays constant and the interest is charged on what is left, so each payment is smaller than the last.

It always costs less in total interest than an annuity over the same term, because the balance falls faster. The trade-off is that the first payments are the largest, exactly when a borrower is least comfortable.

What this calculator shows

The first and last payment, showing how far they fall
Total interest, and the same figure under an annuity
How much the declining schedule saves overall

What to keep in mind

Assumes a fixed rate and no early repayment.
Banks often approve a smaller loan under this scheme, since qualification is based on the highest payment.

FAQs

Which is better, annuity or declining balance?

Declining balance costs less in total interest. An annuity is easier to budget for and, because banks assess you on the first payment, it often lets you borrow more.

Why does the payment shrink each month?

The principal portion is fixed while interest is charged on a shrinking balance. Less interest each month means a smaller total payment.

Can I choose the scheme?

Sometimes. Many banks offer only annuity for consumer loans, while mortgages more often allow both. It is worth asking, because the difference is real money.

How much do I actually save?

Typically several percent of the loan amount, growing with the rate and the term. On long, high-rate loans the gap becomes substantial.

Worked example

A five-year loan

Input: 1,000,000 at 12% for 60 months

Output: First payment about 26,667, last about 16,834

Note: Total interest comes to roughly 305,000, against about 335,000 for an annuity — around 30,000 saved for accepting a heavier start.

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Declining Balance Loan Calculator

Result

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