Loan Calculator
Flat rate interest is charged on the original amount for the whole term, so the effective annual rate shown below is higher than the quoted rate.
Repayment schedule
| Month | Instalment | Principal | Interest | Balance |
|---|
How the calculation works
On a reducing balance loan the monthly instalment is P × r × (1 + r)n / ((1 + r)n − 1), where P is the amount borrowed, r is the monthly rate (annual rate ÷ 12) and n is the number of months. Each month the interest is charged on the balance still owed, so interest shrinks and more of each instalment goes to principal over time.
On a flat rate loan the interest is the amount × the annual rate × the number of years, added up front and divided evenly across the months. Because you repay principal every month but keep paying interest on the full original amount, the effective annual rate is far higher than the quoted rate. We compute it as the monthly rate that makes the instalments equal the amount borrowed, annualised.
Worked example. KES 500,000 over 36 months at 14% per year, reducing balance, gives a monthly rate of 1.1667% and an instalment of about KES 17,090, or roughly KES 115,000 in total interest. The same quoted 14% as a flat rate means KES 500,000 × 14% × 3 years = KES 210,000 in interest, an instalment of about KES 19,720, and an effective annual rate of about 27%.
This calculator excludes processing fees, insurance, legal and valuation charges and taxes. Ask your lender for the full cost of credit before you sign.
Frequently asked questions
What is the difference between reducing balance and flat rate?
On a reducing balance loan interest is charged on what you still owe, so it falls as you repay. On a flat rate loan interest is charged on the original amount for the whole term, so the effective annual rate is much higher than the quoted rate.
Which method do Kenyan banks use?
Most bank loans are quoted on a reducing balance basis. Some mobile and asset-finance products quote flat or monthly rates, so always check which basis the lender uses.
Does this include fees and insurance?
No. Processing fees, insurance, legal and valuation charges and excise duty vary by bank and are not included, so your real cost will be higher. Always ask the lender for the full cost of credit.
Is this an offer or a quote?
No. It is an estimate for planning only. Your lender’s figures are the ones that count.
How can I lower the cost of a loan?
Borrow less, choose a shorter term where you can afford the instalment, compare reducing balance rates across lenders, and make extra repayments if your loan allows it without penalty.
Estimate only, not an offer or financial advice. Fees, charges and rates vary by bank.