When taking out a loan or a mortgage, a bank sometimes lets you choose a payment schedule — annuity (level) or declining-balance. The difference affects both the size of your monthly payment and the total amount you pay in interest.
Annuity (level) payments
With an annuity schedule, the monthly payment amount stays the same for the entire loan term. But the mix of interest and principal within that payment shifts over time: early on, interest dominates the payment, while the share going toward principal grows closer to the end of the term. This is the most common schedule — a predictable, unchanging payment is easy to plan a budget around.
Declining-balance payments
With a declining-balance schedule, the principal is paid off in equal amounts each month, while interest is calculated on the remaining balance. Since that balance shrinks over time, the payment gets smaller month by month — it's noticeably higher than an annuity payment at the start of the term and lower by the end.
Which schedule costs less
At the same loan amount, rate, and term, the declining-balance schedule results in less total interest paid, because the principal is paid down faster — interest accrues on a shrinking balance right from the start. But the first payment is noticeably higher than with an annuity, which can be inconvenient on a tight monthly budget.
How to work out the exact numbers
The loan calculator computes both schedules at once: enter the loan amount, interest rate, and term in months, and get the monthly payment, a full month-by-month amortization schedule (payment, principal portion, interest portion, remaining balance), and the total interest paid. The calculation updates instantly whenever any field changes, and everything runs in the browser, with no data sent to a server.
The monthly annuity payment is calculated with the formula A = P·r(1+r)^n / ((1+r)^n − 1), where P is the loan amount, r is the monthly interest rate, and n is the term in months.
What the calculator doesn't account for
The calculation only covers the principal and interest at the stated rate. Bank fees, insurance, and other charges that might be written into a real loan agreement aren't included, and they can increase the final amount you pay.
Bottom line
Declining-balance payments cost less in total interest, but require a higher first payment. Annuity payments are easier to budget around, thanks to the same amount every month. The choice depends on what matters more: paying less overall or having a predictable, level payment.