31 July 2026 · 6 min read
"5% per month" sounds like one number, but how that 5% gets applied changes what you actually pay. There are two common approaches, and they're not the same thing.
Flat rate vs. reducing balance
A flat rate charges interest on the full original loan amount for every single instalment, even after you've paid a chunk of it back. A reducing balance — what we use — charges interest only on what you still owe. As your balance goes down, the interest portion of your payment goes down with it.
Key takeaway
A worked example
Borrow RWF 1,000,000 over 4 months at 5% per month on the reducing balance:
| Principal | Monthly payment | Total interest | Total repayment |
|---|---|---|---|
| RWF 1,000,000 | RWF 282,012 | RWF 128,047 | RWF 1,128,047 |
Notice the monthly payment stays identical every month — but underneath, the mix changes. Here's the actual breakdown:
| Instalment | Interest portion | Principal portion | Balance after |
|---|---|---|---|
| #1 | RWF 50,000 | RWF 232,012 | RWF 767,988 |
| #2 | RWF 38,399 | RWF 243,613 | RWF 524,375 |
| #3 | RWF 26,219 | RWF 255,793 | RWF 268,582 |
| #4 | RWF 13,429 | RWF 268,582 | RWF 0 |
The interest portion shrinks every month — from RWF 50,000 in month 1 down to just RWF 13,429 in the final month — because there's simply less principal left to charge interest on.
Why this matters to you
It means paying extra toward your loan early, where possible, has a real, immediate effect: less outstanding balance means less interest charged on every instalment after that. It also means there's no benefit to us in dragging out your loan artificially — the math rewards you for repaying, which is the entire point of choosing reducing balance in the first place.
Want to try your own numbers? Use the loan calculator on our Loans page to see your monthly payment and full schedule before you apply.