Flat rate or reducing balance: what a loan really costs

The same 2% a month costs far more at a flat rate than on a reducing balance. Famu works out both and shows the schedule before you save.

1. Flat rate (the usual SACCO habit): interest on the full amount borrowed, every period, however much you have paid back.
2. Reducing balance (the usual bank habit): interest only on what is still owed, with a level instalment.
3. UGX 1,200,000 at 2% a month over 12 months costs 288,000 in interest flat, and about 161,700 on a reducing balance.
4. On Business → Loans & Grants → Add, change "Charged as" and watch the schedule's interest total change before you save.