Annuity loan or serial loan - Which should I choose?
Most loans from your bank are annuity loans, but did you know that you can also ask for a serial loan? The type of loan you select has a bigger impact on larger loans like mortgages. The type can affect the total price significantly.
Annuity loan
An annuity loan is a loan where you pay a fixed amount every month for a pre-determined period.
- Predictable
Because you pay the same amount every month for the whole period, even though the interest is higher at the start
- More expensive than a serial loan
Because you pay a flat sum every month, even though the interests are highest at the start.
Example - An annuity loan for 10 000 over 4 months with 50% interest
| Month | Payment Payment | Principal Payment | Interest Payment | Fee Payment | Paid so far Payment | Remaining |
|---|---|---|---|---|---|---|
| 1 | 2,826 | 2,349 | 417 | 60 | 2,826 | 7,651 |
| 2 | 2,826 | 2,447 | 319 | 60 | 5,652 | 5,203 |
| 3 | 2,826 | 2,549 | 217 | 60 | 8,478 | 2,654 |
| 4 | 2,825 | 2,654 | 111 | 60 | 11,303 | 0 |
The payment is the same every month with an annuity loan
Serial loan
A serial loan is a loan where you pay a higher sum in the start and a lower sum at the end. You do this to reduce the amount of interest that the loan accumulates, by paying more when the interest is higher.
- Cheaper than an annuity loan
Because you pay more when the interest is highest (at the start).
- Easier in the latter half
Because you pay less every month in the latter half, when the interest is lowest
- More difficult at the start
Because you pay more early, when the interest is highest.
Example - A serial loan for 10 000 over 4 months with 50% interest
| Month | Payment Payment | Principal Payment | Interest Payment | Fee Payment | Paid so far Payment | Remaining |
|---|---|---|---|---|---|---|
| 1 | 2,977 | 2,500 | 417 | 60 | 2,977 | 7,500 |
| 2 | 2,873 | 2,500 | 313 | 60 | 5,849 | 5,000 |
| 3 | 2,768 | 2,500 | 208 | 60 | 8,618 | 2,500 |
| 4 | 2,664 | 2,500 | 104 | 60 | 11,282 | 0 |
The principal amount is the same every month with a serial loan. The total payment goes down over time.
What method should you pick?
- Pick an annuity loan
If you need predictability or can't pay the larger termin amounts at the start. Use our calculator to see what works for you!
- Pick a serial loan
If you can handle the larger termin amounts at the start, and want to pay the least amount of interest
Regardless of which method you pick, it's important to consult a professional. A bank usually wants to earn the most amount of money with your loan, so the usually give you an annuity loan.