Loan types
The 5 amortization systems, compared with the same loan and real numbers.
The loan type decides how principal and interest are split across the installments. With the same principal and the same rate, changing the type changes the installment, the total payable and your profit. It is the most profitable decision in the form, and it cannot be changed once the loan has payments.
To compare properly, the five examples below are the same loan: RD$10,000 · 5% per period · 4 installments · monthly.
Quick comparison
Type | How the installment behaves | Total payable | Your profit |
|---|---|---|---|
Fixed installment (French) | Always the same | RD$11,280.48 | RD$1,280.47 |
SAN | Always the same | RD$12,000.00 | RD$2,000.00 |
Fixed credit (German) | Starts high, goes down | RD$11,250.00 | RD$1,250.00 |
Fixed interest (American) | Interest only; principal at the end | RD$12,000.00 | RD$2,000.00 |
Open (promissory note) | Interest only; principal at the end | RD$11,500.00 | RD$1,500.00 |
Same money lent, same rate: profit ranges from RD$1,250 to RD$2,000 depending on the system. The difference lies in which balance the interest is charged on and when the principal comes back.
1. Fixed installment (French system)
The client always pays the same. Interest is charged on the remaining balance, so early on it is mostly interest and by the end mostly principal.
# | Installment | Interest | Principal | Balance |
|---|---|---|---|---|
1 | RD$2,820.12 | RD$500.00 | RD$2,320.12 | RD$7,679.88 |
2 | RD$2,820.12 | RD$383.99 | RD$2,436.13 | RD$5,243.75 |
3 | RD$2,820.12 | RD$262.19 | RD$2,557.93 | RD$2,685.82 |
4 | RD$2,820.12 | RD$134.29 | RD$2,685.83 | RD$0.00 |
When to use it: when the client needs a predictable installment and you want the market standard. It is the easiest to explain: "you pay me RD$2,820.12 every month, four times".
With 0% interest: nothing breaks; the system splits the principal into equal parts (RD$2,500 per installment).
2. SAN
Principal split into equal parts plus a constant interest computed on the original principal (not on the remaining balance). The installment is fixed too, but comes out pricier than the French one because the interest never drops.
# | Installment | Interest | Principal | Balance |
|---|---|---|---|---|
1 | RD$3,000.00 | RD$500.00 | RD$2,500.00 | RD$7,500.00 |
2 | RD$3,000.00 | RD$500.00 | RD$2,500.00 | RD$5,000.00 |
3 | RD$3,000.00 | RD$500.00 | RD$2,500.00 | RD$2,500.00 |
4 | RD$3,000.00 | RD$500.00 | RD$2,500.00 | RD$0.00 |
When to use it: it is the neighborhood lender's system: easy to compute in your head, round installment and more profitable than the French one at the same nominal rate.
3. Fixed credit (German system)
The principal repaid is always the same (RD$2,500) and the interest is charged on the balance, which keeps dropping. The result: the installment starts high and goes down.
# | Installment | Interest | Principal | Balance |
|---|---|---|---|---|
1 | RD$3,000.00 | RD$500.00 | RD$2,500.00 | RD$7,500.00 |
2 | RD$2,875.00 | RD$375.00 | RD$2,500.00 | RD$5,000.00 |
3 | RD$2,750.00 | RD$250.00 | RD$2,500.00 | RD$2,500.00 |
4 | RD$2,625.00 | RD$125.00 | RD$2,500.00 | RD$0.00 |
When to use it: when you want your capital back fast and the client can handle a higher first installment. It generates the least total interest of the five at the same rate.
4. Fixed interest (American system)
The client pays interest only in every installment and returns the whole principal in the last one, which also carries its own interest.
# | Installment | Interest | Principal | Balance |
|---|---|---|---|---|
1 | RD$500.00 | RD$500.00 | RD$0.00 | RD$10,000.00 |
2 | RD$500.00 | RD$500.00 | RD$0.00 | RD$10,000.00 |
3 | RD$500.00 | RD$500.00 | RD$0.00 | RD$10,000.00 |
4 | RD$10,500.00 | RD$500.00 | RD$10,000.00 | RD$0.00 |
When to use it: a client with seasonal income (sells the harvest, collects a contract) who can service the interest meanwhile and settle the principal in one go.
Mind the risk: the principal never goes down until the last installment. If the client fails at the end, you fail for 100% of the principal.
5. Open (promissory note)
Same as fixed interest, but the last installment is principal only, with no extra interest. That is why the total is lower (RD$11,500 vs RD$12,000).
# | Installment | Interest | Principal | Balance |
|---|---|---|---|---|
1 | RD$500.00 | RD$500.00 | RD$0.00 | RD$10,000.00 |
2 | RD$500.00 | RD$500.00 | RD$0.00 | RD$10,000.00 |
3 | RD$500.00 | RD$500.00 | RD$0.00 | RD$10,000.00 |
4 | RD$10,000.00 | RD$0.00 | RD$10,000.00 | RD$0.00 |
When to use it: the classic "you pay me RD$500 of interest every month until you return my RD$10,000". It is also the type that gets renewed the most: when maturity arrives, many clients prefer to roll the principal into a new loan. See Renewing a loan.
Details worth knowing
- The rate is per period, not annual. 5% with monthly frequency is 5% per month. The same rate with daily frequency is 5% per day.
- The type can be changed while editing, but only as long as the loan has no payments. After that it is locked.
- The "target installment" and "fixed interest per period" you see in the calculator (for SAN, Fixed interest and Open) are simulation only: they help you see which rate a round installment implies, but they do not travel to the real loan. The created loan always uses the engine's default calculation from the interest you typed.
- All five types use the same engine as the calculator and the loan detail. What you simulate is exactly what gets charged.