French, linear and American amortization
In the French system the payment is constant; in the linear system you repay the same principal each month and the payment falls; in the American system you pay only interest and repay the whole principal at the end. For 20,000 € at 7% over 5 years, linear costs 203 € less interest than French and American costs 3,239 € more.
French: fixed payment · linear: principal P / n · American: interest, principal at the end
Updated: · Albea Systems
Result
| Repayment system | First payment | Last payment | Total interest |
|---|---|---|---|
| French | €396.02 | €396.02 | €3,761.44 |
| Linear | €450.00 | €335.28 | €3,558.33 |
| American | €116.67 | €20,116.67 | €7,000.00 |
What changes in each
French is the most common and the easiest to budget. Linear starts with a higher payment and pays less interest. American gives the lowest first payment, but the last one carries the whole principal, which you need to have ready.
The lowest payment is not the cheapest: in this example the American system starts 279 € lighter than French and ends up costing 3,239 € more in interest.
Capital does this calculation on your device, with the same figures you see here.
Download on the App StoreFrequently asked questions
Which system pays the least interest?
Linear, because it repays more principal early on. American adds the most interest, because the principal does not fall until the end.
Which is the most common?
French, with a constant payment, is what almost all mortgages and personal loans use.
What is the risk with the American system?
The last payment includes the whole principal. If you do not have it ready, you will have to refinance on whatever terms apply then.
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- Download on the App StoreCapital does this calculation on your device, with the same figures you see here.