What this calculator does
Two loans can carry the same headline rate and cost very different amounts. The difference is the interest method. Enter the amount, rate, period and any fees taken off the top, and the calculator compares the three methods you are most likely to meet in a bank, SACCO, microfinance or chama loan offer: reducing balance with equal instalments, flat rate, and reducing balance with equal principal repayments. It also converts each one, fees included, into an annual percentage rate (APR) so you can compare offers like for like.
Flat rate vs reducing balance
On a reducing balance loan, interest is charged only on what you still owe, so the interest share of each payment falls as you repay. On a flat rate loan, interest is charged on the original amount for the whole term, even though you have repaid part of it. That is why a flat rate looks cheaper on paper than it is. The Kenya Bankers Association’s Total Cost of Credit template lists both “Reducing Balance” and “Flat Method” as the interest types a lender should state.
How it is calculated
Monthly rate i = annual rate ÷ 12 (or the monthly rate as entered)
Reducing balance instalment = P × i ÷ (1 − (1 + i)−n)
Flat rate instalment = (P + P × i × n) ÷ n
Equal principal instalment k = P ÷ n + interest on the balance still owed
APR = the monthly rate that makes your instalments equal the cash you actually receive (loan minus upfront fees), × 12. The compounded figure is (1 + monthly rate)12 − 1.
Worked example (hypothetical numbers)
KES 100,000 over 12 months at 12% a year, no fees. On reducing balance you pay about KES 8,885 a month and KES 6,619 in interest. At a 12% flat rate you pay about KES 9,333 a month and KES 12,000 in interest, an APR of about 21.5%. Same headline rate, roughly KES 5,400 more. Add a 2% processing fee and every APR rises, because you receive less cash but repay the same amount.
Before you sign
Ask the lender which interest method applies, whether the rate is per month or per year, and for every fee: processing, insurance, legal costs and levies. Banks in Kenya are required by the Central Bank of Kenya to give you a Total Cost of Credit breakdown and a repayment schedule, according to the Cost of Credit website run by the Kenya Bankers Association, which also has a calculator for bank loans. The KBA consumer guide notes that under section 62(1) of the Consumer Protection Act 2012 a borrower may repay a loan early without a penalty. For SACCO and chama loans, check your by-laws and loan policy. This tool is a guide, not financial advice: the lender’s schedule is what counts.
Frequently asked questions
Is a 1% per month rate the same as 12% a year?
As a nominal rate, yes: the calculator treats 1% a month as 12% a year. Choose “per month” if your offer is quoted monthly, as many SACCO and chama loans are. The compounded figure shows the effect of monthly repayment.
Why is the flat-rate APR so much higher than its headline rate?
Because you pay interest on the full amount for the whole term while your balance shrinks. Over 12 months, a flat rate costs roughly as much as a reducing-balance rate close to double the headline figure.
Which method does my SACCO use?
Ask for the loan policy or a sample repayment schedule. If interest stays the same every month while the balance falls, it is a flat rate.
Do you store my numbers?
No. Everything is calculated in your browser and nothing is sent to us.
The tool was announced on 11 November 2026. Read the press release.