Annuity vs classic repayment: which costs less

You’re choosing a loan and you see two options: “annuity” or “classic schedule”. The bank rarely explains the difference in money terms — it simply shows the size of the first payment. This article shows what each choice costs on the very same loan and helps you decide which schedule suits your situation.

# Which schedule costs more and by how much

The classic schedule produces a lower total overpayment in the vast majority of cases. This isn’t an opinion — it’s maths: with a classic schedule the principal falls by equal amounts every month, so the base on which interest is calculated drops faster.

Let’s work through a single example. Suppose: a loan of UAH 200,000, a rate of 22% per annum, a term of 36 months. These figures are illustrative — plug in your own numbers using the loan calculator with the real rate.

Classic schedule:

• Monthly principal repayment: 200,000 ÷ 36 = UAH 5,556
• Interest in month 1: 200,000 × 22% ÷ 12 = UAH 3,667 → payment UAH 9,223
• Interest in month 36: ~5,556 × 22% ÷ 12 ≈ UAH 102 → payment UAH 5,658
• Total interest: approximately UAH 66,917

Annuity:

• Fixed monthly payment (calculated using the annuity formula): approximately UAH 7,667
• Total interest: 7,667 × 36 − 200,000 ≈ UAH 76,012

Difference: approximately UAH 9,095 in favour of the classic schedule. In this example, that’s nearly two monthly annuity payments.

The larger the loan amount and the longer the term, the more significant the difference. On a 20-year mortgage for UAH 2 million, the difference in total overpayment between the two schedules can reach several hundred thousand hryvnias. Check your own scenario in the mortgage calculator.

# Why an annuity always results in a higher overpayment

With an annuity, the bank calculates the fixed payment so that in the early months a greater portion goes towards interest and a smaller portion towards the principal. This means the outstanding balance falls slowly, and interest continues to accrue on a large base.

Example: in the first month, of the UAH 7,667 annuity payment only ~UAH 3,000 reduces the debt — the rest is interest. With the classic schedule that same month: UAH 5,556 reduces the debt immediately. After a year the outstanding balance under the classic schedule will be noticeably lower — and less interest will accrue in the following year.

This is a fundamental property of the schedule, not a feature of any particular bank’s terms. Even if a bank offers the same rate for both options, the annuity will cost more because of the repayment structure.

# When an annuity is still justified

An annuity isn’t always a poor decision. It is justified in several specific situations.

A tight budget at the outset. If your current income doesn’t comfortably allow payments of UAH 9,000–10,000 in the early months, but you expect a pay rise within a year, an annuity reduces the initial burden. The difference in overpayment is effectively the price of financial flexibility.

Budget planning. A business or household with a strict monthly budget can set aside a fixed sum without recalculating every month. With a classic schedule you need to check the changing amount each month.

Buying a car or business equipment. If the asset immediately starts generating income that covers the payment, a fixed payment is more convenient for financial planning. For more on choosing between leasing and a car loan for business.

For whom the classic schedule is unsuitable: borrowers with uneven or unstable income, where large initial payments could become a problem. Also — if the bank offers the classic schedule only at a higher rate (this does happen: compare the total overpayment, not just the schedule).

# Where the real cost of a loan is hidden

Comparing loans by repayment schedule alone is not enough: banks add fees, insurance and other costs that are not included in the interest rate.

The real cost of a loan is shown by the APR (annual percentage rate) or the total cost of credit in the payment schedule, which the bank is required to provide before you sign the agreement. This figure accounts for both the rate and all charges.

A common mistake: a borrower chooses an annuity with a lower rate without noticing compulsory insurance costing UAH 3,000 a year. In the end, the “cheaper” option turns out to be more expensive.

Another trap: some banks quote a monthly rate rather than an annual one. A rate of 1.8% per month is over 21% per annum, and even 1% per day is the absolute maximum ceiling in force for micro-loans under Law №3498-IX.

Before signing an agreement, check:

• The total amount of all payments (principal + interest + fees + insurance).
• Whether there is an early repayment penalty and how large it is.
• Whether the rate changes during the term (fixed or variable).

If you already have an annuity loan and are considering moving to another bank, calculate the benefit in the refinancing calculator. Refinancing is worthwhile if the interest savings outweigh the costs of switching.

# A practical rule for choosing

Choosing between the two schedules is simpler with two questions.

First question: can you manage the initial payment under a classic schedule? Calculate it: principal ÷ number of months + interest on the full amount for the first month. If the sum doesn’t exceed ~40% of your net income, the classic schedule is within your reach and will give you a lower overpayment.

Second question: do you plan early repayment? If so, under a classic schedule every additional payment reduces the base for future interest more effectively, because the outstanding balance is already falling faster. For information on loan terms in 2026 and their real rates, see the article on the 5-7-9% programme and grounds for refusal.

If your budget allows it, choose the classic schedule. If the initial payment under a classic schedule exceeds your means, an annuity is a rational choice, not a bad one. The key is to compare the total overpayment, not just the monthly payment amount.

Note: with unstable income, both schedules carry the risk of missed payments. In that case it’s worth first assessing your credit history — it affects the terms any bank will offer you.

# See also

• Loan calculator with the real rate — calculate the overpayment under both schedules for your amount and term
• Loan refinancing calculator — is it worth switching to another bank?
• Mortgage calculator — comparing schedules over a long term
• Leasing or a car loan for business — another dimension of financing choice