Repayment schedule

A repayment schedule is the table setting out every payment due over the life of a loan: when each payment falls, how much it is, how much of it is interest, how much reduces the principal, and what balance remains afterwards. Where the loan fully amortises, it is also called an amortisation schedule.

The schedule is the loan's contract expressed as arithmetic. It is produced at disbursement, given to the borrower, and used by the lender to determine what is due, what is overdue, and what remains outstanding at any date.

What a schedule contains

• Payment number — Sequence position, 1 through n
• Due date — When the payment falls due
• Opening balance — Principal outstanding before the payment
• Instalment — Total amount payable
• Interest — Interest accrued for the period
• Principal — The portion reducing the balance
• Closing balance — Principal outstanding after the payment

Some schedules add columns for fees, insurance premiums, cumulative interest paid, or penalty amounts on overdue instalments.

A worked schedule

$5,000 at 12% per annum on a reducing balance, over 12 monthly instalments.

Monthly rate = 1.0%
Instalment   = $444.24

#    Opening    Instalment   Interest   Principal    Closing
 1   5,000.00       444.24      50.00      394.24   4,605.76
 2   4,605.76       444.24      46.06      398.18   4,207.58
 3   4,207.58       444.24      42.08      402.16   3,805.42
..
11     875.33       444.24       8.75      435.49     439.84
12     439.84       444.24       4.40      439.84       0.00

Total paid     = $5,330.88
Total interest = $330.88

The instalment is constant; the split inside it is not. In month 1, $50 of the $444.24 is interest. By month 12, only $4.40 is. Interest is charged on the balance outstanding, and that balance falls every month.

On short loans the shift is modest. On long ones it is dramatic — on a twenty-year mortgage, the majority of an early instalment can be interest, which is why the balance appears to barely move in the first years.

Types of repayment schedule

• Equal instalment (annuity) — Constant instalment with rising principal repayment over time; used for most consumer and SME lending.
• Equal principal (straight-line) — Instalments fall over time with constant principal repayment; used for asset finance and some commercial loans.
• Interest-only then bullet — Small, constant interest-only instalments with the entire principal due at maturity; used for bridge finance and commercial property.
• Partially amortising (balloon) — Constant instalments with a residual lump sum due at maturity; used for vehicle and equipment finance.
• Step-up — Instalments and principal repayments rise over time; used for borrowers with expected income growth.
• Step-down — Instalments and principal repayments fall over time; used for borrowers with declining capacity.
• Seasonal / irregular — Payments matched to cash inflows; used in agriculture and harvest-linked lending.
• Grace period — Nil or interest-only payments during an initial deferred start; used in project finance, construction, and education.

Equal instalment vs. equal principal

Using the same $5,000 at 12% over 12 months:

Equal instalment:  $444.24 every month
                   total interest = $330.88

Equal principal:   $416.67 principal + declining interest
                   first payment  = $466.67
                   last payment   = $420.84
                   total interest = $325.00

Equal principal costs slightly less in total, because principal is repaid faster in the early months. It demands more cash up front, which is why equal instalment dominates in consumer lending — predictability is worth more to most borrowers than the small saving.

Grace periods

A grace period defers the start of repayment. Two versions, with very different effects:

• Principal grace — interest is paid during the grace period, principal is not. The balance stays flat but does not grow.
• Full grace (moratorium) — nothing is paid, and accrued interest is usually capitalised. The balance increases during the grace period, and every subsequent instalment is calculated on the larger amount.

Borrowers frequently assume a full grace period is free. It is the more expensive of the two.

What shapes the numbers

• Interest method. Reducing balance calculates interest on the outstanding amount; flat rate calculates it on the original principal throughout. For the same nominal rate, flat produces materially more interest — and a flat-rate schedule shows a constant interest column rather than a declining one.
• Day count convention. Actual/365 and 30/360 produce different interest amounts for the same rate and period. A month with 31 days accrues more than one with 28 under Actual/365, and exactly the same under 30/360.
• Payment frequency. Weekly or fortnightly schedules repay principal faster than monthly ones at the same annual rate, reducing total interest slightly and matching the cash flow of borrowers who earn daily.
• First payment date. A gap between disbursement and the first due date creates odd days interest, which is either added to the first instalment or capitalised.
• Fees. Whether arrangement and insurance charges are deducted at disbursement, added to principal, or spread across instalments changes both the instalment and the effective cost.

When a schedule changes

A repayment schedule is not permanent. It is recalculated when:

• An overpayment is applied to principal — either shortening the term or reducing future instalments, depending on the instruction given
• The loan is restructured — the term, rate or instalment is modified because the original schedule became unaffordable
• A top-up is granted — the existing balance is settled and a new schedule issued on the larger amount
• The rate changes on a variable-rate loan — instalments or term adjust
• Payments are missed — arrears, penalty interest and any capitalisation alter what remains due

Each of these should produce a revised schedule issued to the borrower. A borrower operating from a superseded schedule will not reconcile with the lender's balance, which is a common source of dispute.

Operational notes for lenders

• Store the schedule rather than recomputing it on demand. A stored schedule preserves what was contracted, survives rate and parameter changes, and gives auditors a fixed reference. Recalculating on the fly makes historical positions irreproducible.
• Version schedules on every modification, retaining superseded ones rather than overwriting.
• Distinguish scheduled from actual. Arrears is the gap between the two; conflating them breaks delinquency reporting.
• Define partial payment handling explicitly — whether a short payment clears the oldest instalment, applies down the waterfall, or sits unallocated.
• Handle rounding deliberately. Instalments rounded to two decimals leave a small residual; most lenders absorb it in the final instalment, which is why the last payment often differs slightly from the rest.
• Disclose the schedule at disbursement, with the total amount repayable. Most jurisdictions require this.