A loan’s fixed installment is calculated by converting the effective annual rate into a monthly rate and applying a formula that splits the payment between interest and principal. The installment is the same every month; at first almost all of it is interest and, over time, principal weighs more and more.
How it is calculated, paso a paso
- Convert the effective annual rate to an equivalent monthly rate.
- Calculate the fixed installment with the French-system formula.
- Each month, the interest is the outstanding balance times the monthly rate.
- The principal repaid is the installment minus that interest.
- The new balance is the previous balance minus the principal repaid; repeat until the balance reaches zero.
The formula
installment = principal × i / (1 − (1 + i)^−n)
interest for the month = balance × i
principal for the month = installment − interest for the month
i is the monthly rate and n the number of installments. If the rate is 0%, the installment is simply the principal divided by n.
Example with numbers
A loan of $10,000,000 over 12 months at a rate of 24% effective annual has a monthly rate of 1.8088% and a fixed installment of $934,525. In total, $1,214,301 in interest is paid.
| Installment | Interest | Principal | Balance after paying |
|---|---|---|---|
| 1 | $180,876 | $753,649 | $9,246,351 |
| 2 | $167,244 | $767,281 | $8,479,070 |
| 6 | $110,207 | $824,318 | $5,268,630 |
| 12 | $16,603 | $917,922 | $0 |
What changes with the term
| Term | Monthly loan installment | Total interest | Total paid |
|---|---|---|---|
| 12 months | $934,525 | $1,214,301 | $11,214,301 |
| 24 months | $517,326 | $2,415,833 | $12,415,833 |
| 36 months | $380,381 | $3,693,702 | $13,693,702 |
A longer term lowers the installment, but the balance takes longer to go down and more interest is paid in total. Before choosing the term, look at both things: what you can pay each month and what the whole loan costs.
Fixed installment and other systems
- Fixed installment (French system): the payment is the same every month. It is the one BankIA and CooperativIA calculate.
- Fixed principal: the same portion of principal is repaid each month, and the installment goes down as the balance goes down.
- With the same amount, term and rate, fixed principal has a higher first installment and pays less interest in total.
What the formula does not include
- Life or debtor insurance, which many institutions add to the installment.
- Fees or administrative charges.
- Each institution’s own rounding.
- Dates: if a payment falls on a holiday or weekend, it moves to the next business day.
How to do it with BankIA
BankIA’s loan simulator calculates the installment, total interest and the full amortization schedule with payment dates, and warns you if your rate exceeds the current usury cap in Colombia. The BankIA and CooperativIA platforms use the same calculation for their loans, with exact decimal arithmetic.
Last updated: October 9, 2026. Written by the BankIA (jsadsAI) team. Educational content: it does not constitute financial or legal advice.
Frequently asked questions
Why do I pay more interest at the beginning?
Because interest is calculated on the balance, and at the start the balance is at its highest. As you repay principal, the balance goes down and so does the interest in each installment.
What happens if I pay extra toward principal?
In general, an extra payment toward principal lowers the balance and, with it, the interest on the following installments. How it is applied (shortening the term or lowering the installment) depends on the institution.
Does the installment change if the rate changes?
With a fixed rate, no. If the loan has a variable rate, the installment is recalculated when the rate changes; check the terms of your contract.
Can my actual installment be different?
Yes. The formula calculates only principal and interest; insurance, fees and the institution’s rounding can make it different.
Keep exploring
Loan simulator
Calculate the installment, interest and amortization schedule of a fixed-installment loan and compare your rate with the usury rate in Colombia.
Open →Effective and nominal rates
What effective annual, nominal in-arrears and nominal in-advance rates are, how to convert them and why it matters when comparing loans and savings.
Open →Usury rate in Colombia
The usury rate is the legal interest cap in Colombia: 1.5 times the current bank interest rate. What it is, who certifies it and where to see the current one.
Open →Put it into practice with your own data.
Request a demo and we will show you the platform running with your name and your rules.