# What is the difference between annuity payments and differentiated payments?

What is the difference between annuity payments and differentiated payments?

- Differential payments are reduced by the end of the crediting period and consist of a repayable constant share of principal and interest on the unpaid balance of the loan. Each month the amount of the principal debt is reduced by the same number, proportional to the size of the loan. As the amount of debt decreases, the amount of interest payments that accrue to its balance falls. Together with the interest, the monthly payment decreases.

An annuity payment is an equal monthly payment for a loan, which includes the amount of accrued interest for the loan and the principal amount.

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Today, most commercial banks use annuity payments for loans for almost all types of loans granted to individuals, since this type of calculation gives them the opportunity to receive higher interest income, and the client provides convenience in the calculations. Agree that it is very convenient and not troublesome monthly to pay the same amount in repayment of the loan and interest, that this amount is easy to remember and, moreover, you do not need to meet monthly with the bank's consultant to find out the next payment amount. - in the ratio of principal and interest repayable in payment

with differentiated payments, repayment of the principal is permanent, and interest is charged on the balance of outstanding debt on the principal debt

with annuity payments themselves payments are constant (equal to each other), and the ratio of principal and interest is different

with annuity payments, interest is primarily extinguished, and repayment of the principal is offset by the end of the loan term. that is, in absolute terms, you will pay more interest on an annuity schedule

on the other hand, with diff. payments for the first payments have a very large load, which also limits the amount of the loan - Simply put on differentiated payments, you can seriously save on interest, which is impossible on annuity.