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Interest Methods

This page provides information on how interest is charged in the system.

The system only supports three interest calculation methods. Everytime you create a loan product you can select one of these interest methods. For more information on creating a loan product, see Creating New Loan Products.

  1. Flat Rate
  2. Reducing Balance - Equal Installments
  3. Reducing Balance - Equal Principal
Please Note

All interest methods reflects the amount that would be due on the due date.

We will illustrate how the repayment schedules would look like on these three interest methods.

The loan details are as follows:

  1. Loan amount - 100
  2. Interest rate - 10% per month
  3. Loan installments - 5
  4. Monthly repayments

Flat Rate​

Flat rate interest stays unchanged through out the loan tenure. The interest here is calculated for the whole loan amount at the beginning of the loan tenure.

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Reducing Balance - Equal Installments​

Equal Installments declining balance calculates the interest on the outstanding principal amount, which is the client's loan. The client pays equal installments for the tenure of the loan. This is achieved by increasing the amount of principal being repaid as the interest decreases, adding up to the same fixed amount for each installment.

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Reducing Balance - Equal Principal​

The reducing balance equal principal method reflects the client's true interest due at any given time. The interest reduces at each installment because it is the true interest due on the current principal due.

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