Annuity vs differentiated payments
Updated: 2026-09 · ArmFinCredit
The same amount, rate and term give a different total interest depending on the repayment scheme. Here is how both work and how to choose.
Annuity: equal payments
The payment stays the same: P × r / (1 − (1 + r)^−n), where P is the loan amount, r the monthly rate (annual ÷ 12) and n the number of months. Early payments are mostly interest, later ones mostly principal.
Pros: a predictable budget and a lower first payment. Cons: the debt shrinks more slowly, so the total interest is higher.
Differentiated: decreasing payments
The principal is split into equal parts and interest is charged on the remaining balance, so the first payment is the largest and each next one is smaller.
Pros: less interest overall. Cons: you need a higher income in the first months, and the bank may approve a smaller amount.
Example
AMD 5,000,000 at 12% for 24 months: the annuity payment is about AMD 235,367 every month, total interest about AMD 648,800. The differentiated payment starts at about AMD 258,333 and falls to ~AMD 210,400, total interest AMD 625,000.
Over long terms the gap grows: on a 20-year mortgage it can reach millions of drams.
Which to choose
If your income is stable and the first payments are comfortable, the differentiated scheme is cheaper. If an even budget matters more, choose the annuity and cut the interest with early repayments.
Compare both on your own numbers: the calculator has an Annuity / Differentiated switch.