Why the same loan can cost you wildly different interest
If you’ve ever compared personal loan offers and thought “the rate is the rate,” repayment method will quickly prove you wrong. Even with the exact same principal and APR, the total interest and the month-to-month burden shift a lot depending on whether you repay with equal principal payments, equal total payments, or interest-only until maturity. I’ve personally found that the “best” option is rarely about saving the last few dollars of interest and more about surviving the early months without stressing your cash flow.
1) The core idea: interest is a time-and-balance game
Loan interest is basically a rent you pay for the outstanding balance. The key phrase is outstanding balance. If you reduce principal faster, the balance shrinks sooner, and interest shrinks with it.
That’s why equal principal repayment often wins on total interest: you cut the balance aggressively from day one. But the trade-off is very real: early payments can feel heavy, especially if your income is variable.
2) Three repayment methods, three different “pain shapes”
I like to think of each method as having its own pain curve.
Equal total payment (amortized): predictable monthly outflow, easy to budget, but you pay more interest than equal principal in many cases because principal declines more slowly early on.
Equal principal: front-loaded burden, but interest typically ends up lower because the balance drops faster.
Bullet repayment (interest-only, principal at the end): feels light monthly, but it’s usually the most expensive in total interest and can be risky if you’re not disciplined about saving for the maturity date.
For formulas and calculators, you can cross-check with calczip and sangdammoa. (https://www.calczip.com/loan) (https://sangdammoa.com/calculator/loan)
3) The formulas you actually need in practice
Even if you use calculators, knowing what’s happening helps you catch mistakes and avoid wishful thinking.
Equal total payment (amortized):
Monthly Payment = Principal × [Monthly Rate × (1+Monthly Rate)^N] / [(1+Monthly Rate)^N - 1]
Monthly Rate = APR / 12, and N = number of months.
Equal principal:
Monthly Payment = (Principal / N) + (Remaining Principal × Monthly Rate)
Bullet repayment:
Total Interest = Principal × Monthly Rate × N
These match the standard definitions shown in common Korean loan calculators. (https://sangdammoa.com/calculator/loan)
4) A concrete mini-example: 10,000,000 KRW at 3% for 12 months
This is the kind of example that made it click for me, because the totals are close for two methods, yet the monthly experience is different.
Amortized (equal total payment): total interest about 163,190 KRW, monthly payment about 863,190 KRW.
Equal principal: total interest about 162,460 KRW, first month about 916,667 KRW.
Bullet repayment: total interest about 300,000 KRW, monthly interest about 25,000 KRW, but you face the full principal at maturity.
Numbers align with the example summaries commonly cited by Toss and calculator pages. (https://toss.im/tossfeed/article/dic-loan-6) (https://sangdammoa.com/calculator/loan)
| Method | Total Interest (KRW) | First Month Payment (KRW) | Last Month Payment (KRW) |
|---|---|---|---|
| Amortized (Equal Total Payment) | 163,190 | 863,190 | 863,190 |
| Equal Principal | 162,460 | 916,667 | 841,667 |
| Bullet (Interest-Only, Principal at End) | 300,000 | 25,000 (interest only) | 10,300,000 (principal + last interest) |
5) The 100,000,000 KRW example: same rate, different totals
Your example gets right to the point: 100,000,000 KRW, APR 4%, 3 years.
Equal principal total interest about 6.16 million KRW, amortized about 6.28 million KRW. The gap looks “small,” but what matters is how it’s earned: equal principal makes you pay more early to reduce the balance faster.
In real life, that early difference is the part people feel. I’ve seen borrowers choose amortized not because it’s cheaper, but because predictable payments reduce the chance of missing a month.
You can validate the calculation structure using standard calculators like calczip. (https://www.calczip.com/loan)
6) Rate changes hurt more than most people expect
What surprised me the first time I compared scenarios was how a 1%p increase doesn’t just add 1% more cost. It stacks across every month the balance remains.
In the 100,000,000 KRW, 3-year amortized example you provided, total interest at 4% is about 6,280,000 KRW, while at 5% it’s about 7,930,000 KRW. That’s a 1,650,000 KRW jump, roughly a 26% increase in interest for just 1%p higher APR in that scenario.
This is why shopping for rate, negotiating, and timing refinancing can matter as much as repayment method. (https://blog.naver.com/blogfsc/223825959704)
7) Practical decision-making: match the method to your cash flow
If your monthly income is stable and you can handle higher early payments, equal principal often behaves like a built-in forced savings plan: painful early, calmer later, and usually lower total interest.
If your life is in flux, you’re building an emergency fund, or your income swings, amortized payments can be a safer psychological choice because it keeps the monthly number consistent.
Bullet repayment can work if you have a known liquidity event and strong discipline, but it’s the easiest to mismanage. The monthly number looks friendly, and that’s exactly why people underestimate the maturity risk.
8) Savings tactics that don’t backfire: fees, rights, and timing
Two things commonly get missed in “interest saving” conversations.
First, prepayment fees. If you repay early, the fee is often calculated based on remaining term and a fee rate. Your notes mention ranges around 0.5% to 1.4% depending on conditions, with some products treating anything beyond 3 years as 3 years for fee calculation. That fee can erase the benefit of a small rate improvement.
Second, rate reduction requests. In Korea, borrowers may request a rate cut when credit conditions improve, and your notes mention savings like 0.2%p to 0.5%p in some cases. Even a small reduction can beat micro-optimizing repayment method, especially on larger balances.
Also, be careful with long grace periods. If you delay principal repayment, the balance stays higher longer, and total interest rises. Your example note of 10% to 15% higher interest with a one-year grace period is a good mental warning sign: convenience has a price.
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