INSTALLMENT PAYMENT OR INSTALMENT REPAYMENT - WHAT'S THE DIFFERENCE? Installments and repayments as a concept often get mixed up. Installments and repayments are both monthly credit repayments, but they are formed differently and thus have a significant impact on the amount of the credit repayment. Installments are equal monthly repayments in which the ratio of the principal and interest to the outstanding principal changes with each repayment. The first installment contains the highest interest and the lowest principal. Every following month, a greater amount of the principal is paid off, and the interest amount decreases, while the total amount of the installment remains the same. Repayments are uneven monthly repayments in which a fixed principal amount is defined in advance. The interest amount is calculated on the remaining principal amount. The first repayment is the largest, every following one is smaller than the previous one, while the last repayment is the smallest. Repayment in repayments is a faster and cheaper repayment of a credit:

faster pay-off of the principal
total interest paid is lower when repaying a credit in repayments than in installments

Repayment in repayments, due to the larger amount of the repayment in the initial repayment of the credit, requires a higher creditworthiness of the client. EFFECTIVE INTEREST RATE (EIR) The interest rate that reflects all the credit costs, including fees, insurance, deposits, and other directly related costs. EIR serves users of credit for comparing credit offers since it represents the total cost per credit. FIXED INTEREST RATE Interest rate which is invariable for the agreed-upon period and does not depend on market conditions or fluctuations of the reference interest rate. VARIABLE INTEREST RATE Interest rate that changes during the agreed-upon period due to changes in the reference interest rate. Variable interest rate consists of a variable part (reference interest rate) and a fixed part that does not change during the repayment of the credit. COMBINATION OF FIXED AND VARIABLE INTEREST RATE In the initial period of credit repayment, a fixed interest rate is agreed upon (e.g., the first 5 years of credit repayment), and after the fixed period, the agreed-upon variable interest rate is applied. INTERCALARY INTEREST Interest charged on the used credit amount for the period from the payment date to the date when the credit is put into repayment. All rights reserved © opereta.hr

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