Loan Rules Explained: Interest, Installments & Allocation

Loan rules control how much interest a member pays, how that interest is spread across installments, and how payments are allocated when a member repays. Because these settings are locked after a loan is created, understanding the implications of each choice before you submit is essential. This page walks through every option with real numbers, comparison tables, and a full amortization schedule so you know exactly what each configuration produces.

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Interest Rate Type

The interest rate type tells Agatabo how to interpret the percentage you enter.

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MONTHLY

The rate applies to each monthly period. A rate of 5% means the member is charged 5% of the outstanding balance every month.

• Annual equivalent (simple): 5% × 12 = 60%
• Most common in tontines — members understand “5% per month” intuitively.

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YEARLY

The annual rate is divided by 12 to get the monthly rate. A rate of 12% per year means 1% per month.

• Use when you want to state a rate comparable to commercial banks that quote annual percentages.

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Interest Calculation Type

This setting determines the mathematical method used to compute the interest charge on each installment.

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SIMPLE Interest

Interest is calculated on the original principal for the entire loan term. The interest charge is identical every month regardless of how much principal has been repaid. Formula: Total Interest = Principal × Rate × Term Example — 100,000 RWF at 5% monthly SIMPLE for 12 months:

• Total interest = 100,000 × 0.05 × 12 = 60,000 RWF
• Total repayment = 160,000 RWF
• Monthly interest = 60,000 ÷ 12 = 5,000 RWF (constant)

Choose SIMPLE when: the loan is short-term (under 6 months), the amount is small, or your members need the simplest possible interest explanation.

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COMPOUND Interest

Interest compounds on the principal plus accumulated interest. For monthly installment loans in Agatabo, COMPOUND behaves identically to REDUCING_BALANCE — the outstanding balance decreases with each payment, and interest is charged on the remaining balance.

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REDUCING_BALANCE Interest (Most Common)

Interest is calculated on the outstanding principal after each payment. As the member repays principal, the interest charge decreases every month. Formula: Monthly Interest = Outstanding Principal × Rate Full amortization table — 120,000 RWF at 5% monthly REDUCING_BALANCE for 12 months (EQUAL_TOTAL): Monthly payment (PMT) = 13,361 RWF Key observations:

• The monthly payment is constant at 13,361 RWF.
• Interest falls from 6,000 in month 1 to 771 in month 12.
• Principal rises from 7,361 to 12,590 — more debt is cleared with each payment.
• Total interest (43,168 RWF) is 28% lower than SIMPLE interest on the same loan (60,000 RWF).

Choose REDUCING_BALANCE when: creating any standard commercial-style loan. It is the industry standard, fair to both borrower and lender, and familiar to members who have bank loans.

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Calculation Type Comparison

Same loan — 100,000 RWF at 5% monthly for 12 months:

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Interest Payment Timing

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IN_ADVANCE

The total interest for the loan is deducted from the borrower’s savings balance at the time of disbursement. The member receives the full principal in cash, but their savings account is reduced by the interest amount immediately. Example — 500,000 RWF loan, 60,000 RWF total interest:

• Interest deducted from savings at disbursement: 60,000 RWF
• Cash received by member: 500,000 RWF
• Monthly installments: principal only (500,000 ÷ 12 = 41,667 RWF each)

Choose IN_ADVANCE when: your organization follows a microfinance model that guarantees interest collection even if the borrower defaults immediately.

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WITH_INSTALLMENTS (Standard)

Interest is built into each monthly installment. The member receives the full principal in cash and pays principal plus interest with every payment over the loan term. Example — 500,000 RWF loan at 5% monthly REDUCING_BALANCE for 12 months:

• Cash received by member: 500,000 RWF
• Monthly payment: ~55,672 RWF (principal + interest)
• Total repayment: ~668,000 RWF

Choose WITH_INSTALLMENTS when: you want a transparent lending relationship where the member sees the true cost over time.

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Installment Type

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EQUAL_PRINCIPAL

The principal portion of each installment is identical. Because the outstanding balance falls each month, the interest charge decreases, so the total payment declines over time. Example — 120,000 RWF at 5% monthly REDUCING_BALANCE for 12 months: Principal per installment = 120,000 ÷ 12 = 10,000 RWF Choose EQUAL_PRINCIPAL when: the member has high cash flow now that is expected to decline, or they explicitly prefer declining payments.

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EQUAL_TOTAL (Recommended)

Each installment is the same total amount (amortized). The interest portion shrinks and the principal portion grows, but the member’s payment never changes. Example: the full amortization table in the REDUCING_BALANCE section above shows EQUAL_TOTAL — every payment is 13,361 RWF. Choose EQUAL_TOTAL for most loans. Predictable payments are easier to budget, easier to collect, and easier to explain.

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Installment Type Comparison

Same loan — 120,000 RWF at 5% monthly REDUCING_BALANCE for 12 months:

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Payment Allocation Order

When a member makes a payment, Agatabo must decide how to split that amount between principal, interest, and any applied penalties. This setting controls that split.

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INTEREST_FIRST

All outstanding interest is paid before any amount is applied to principal. Full payment example — 10,000 RWF payment when 3,000 interest + 7,000 principal is due:

1. Interest: 3,000 RWF (paid in full)
2. Principal: 7,000 RWF (paid in full)

Partial payment example — 5,000 RWF payment on the same installment:

1. Interest: 3,000 RWF (paid in full)
2. Principal: 2,000 RWF (partial — 5,000 principal still outstanding)

Choose INTEREST_FIRST for most tontines. It ensures the organization’s interest revenue is collected before the principal is reduced.

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PRINCIPAL_FIRST

All outstanding principal is paid before any amount is applied to interest. Partial payment example — 5,000 RWF payment when 7,000 principal + 3,000 interest is due:

1. Principal: 5,000 RWF (partial — 2,000 principal + 3,000 interest still outstanding)

Choose PRINCIPAL_FIRST if reducing the member’s debt balance is more important than protecting interest income.

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PROPORTIONAL

The payment is split in the same ratio as principal to interest outstanding. Partial payment example — 5,000 RWF payment when 7,000 principal + 3,000 interest is due:

• Ratio: 70% principal : 30% interest
• Principal: 5,000 × 70% = 3,500 RWF
• Interest: 5,000 × 30% = 1,500 RWF

Choose PROPORTIONAL when you want a balanced approach that reduces both principal and interest with every payment, particularly useful when partial payments are common.

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Allocation Comparison

Partial payment of 5,000 RWF when 7,000 principal + 3,000 interest is due:

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Recommended Loan Configurations

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Standard Commercial Loan (Most Organizations)

The most versatile configuration for member loans of any size. Example result: 500,000 RWF at 3% monthly for 24 months → monthly payment ~27,000 RWF, total interest ~148,000 RWF.

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Simple Short-Term Loan

Ideal for small emergency loans with a term of six months or less. Example result: 100,000 RWF at 5% monthly for 6 months → interest deducted upfront: 30,000 RWF; monthly principal payment: 16,667 RWF.

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Member-Friendly Long-Term Loan

For larger loans where member affordability is a priority.

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Microfinance-Style Loan

Common in organizations that guarantee full interest collection at disbursement.