Try how equal principal payment loan, equal installment loan and variable annuity loan behave. Use different interest rates and different pay back times to see what are loan payments, principal payments and total interest costs. You can also change the interest rate during the payment period.
Comparison table of loan types
| Loan type | Installment | Payment period |
|---|---|---|
| variable annuity | changes if interest rate changes | fixed |
| equal installment | fixed | changes if interest rate changes |
| equal principal payment | changes | fixed |
Equal principal payment 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 payment period, payments will be bigger. If the interest rate goes down during payment period, payments will be smaller.
Equal installments 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 the payment period, the payment period will be longer. If the interest rate goes down during the payment period, the payment period will be shorter.
Variable annuity loan
Variable annuity loan is almost the same as equal installments loan. The only difference is that if the interest rate changes it will affect the payment, not the payment period. If the interest rate goes up, the installment will be bigger. If the interest rate goes down, the installment will be smaller.