You can try how fixed principal loan and fixed payments loan behave. Use different interest rate and different pay back time to see what are loan payments, principal payments and total interest cost.

## Fixed principal loan

Payments are not the same all the time. You pay the same amount for loan principal but different amount for interests.

Let us assume that you take 1000€ loan for two years. The interest rate is 2% and you make annual payments. In the first payment principal payment is 500€ and interest is 20€. In the second payment principal payment is 500€ and interest is 10€. So you make payments: 520€ and 510€.

If the interest rate goes up during payback time, payments will be bigger due to increased interest. If the interest rate goes down during payback time, payments will be smaller due to decreased interest.

## Fixed payments loan

Payments are the same all the time. Let us take the same example as above: two year loan for 1000€ with 2% interest rate and annual payments. In fixed payments loan both payments are 515.05€. In fixed payments loan the total interest cost is higher. This is because there will be not as much principal payment in the beginning.

If the interest rate goes up during payback time, payback time will be longer. If the interest rate goes down during payback time, payback time will be shorter.