Annuity vs Differentiated Payment: What's the Difference?
Two loan repayment schedules — fixed payments or declining ones. We explain the difference with real figures and tell you when each works better.
When you take out a loan, the bank will offer one of two repayment schedules: annuity or differentiated. Your choice affects both your monthly budget and the total amount you'll pay.
Annuity Payment
With an annuity schedule, your monthly payment stays exactly the same for the entire loan term. The bank structures it so that interest and principal are combined into equal installments.
In the early months, most of your payment covers interest. As the balance falls, the split shifts: less interest, more principal.
- Fixed payment every month — easy to budget
- Default option at most banks
- Slightly higher total interest compared to differentiated
Differentiated Payment
With a differentiated schedule, the principal is split into equal portions while interest is calculated on the remaining balance. As the balance falls, so does the interest — and therefore the total payment.
Early payments are noticeably higher than with annuity, but payments decrease steadily until the final months.
- Lower total interest paid over the loan life
- Higher initial payments may strain the budget
- Less common — check availability at your bank
Side-by-Side Comparison
Let's compare using a 10,000,000 UZS loan for 24 months at 25% annual interest.
| Metric | Annuity | Differentiated |
|---|---|---|
| First payment | 530,400 UZS | 624,000 UZS |
| Last payment | 530,400 UZS | 427,100 UZS |
| Total interest paid | 2,729,000 UZS | 2,604,000 UZS |
| Savings vs annuity | — | −125,000 UZS (−4.6%) |
The larger the loan and longer the term, the more significant the difference. On a 50M UZS loan over 5 years, savings can reach several million sums.
Which Should You Choose?
Choose annuity if predictability matters most. Your payment won't change whether it's month three or month thirty.
Choose differentiated if your income comfortably covers higher early payments and you want to minimize total interest cost.
In Uzbekistan, most consumer loans are offered only on an annuity basis. Differentiated repayment is more common for mortgages and car loans — confirm with your bank.
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