14/10/2026

How installment math works: flat and reducing

Shops run installments two ways. Flat interest is charged on the whole principal for the whole term, then split into equal months. Reducing interest is charged only on what is still unpaid. Twelve percent can mean two different taka amounts. Write down which one you are using before anyone pays.

Formula

Reducing balance:

P × r × (1+r)^n ÷ ((1+r)^n − 1)

P is principal, n is months, and r is the annual rate divided by 12 and then by 100. If the rate is zero, the installment is principal divided by months.

Flat interest is principal × (annual rate ÷ 100) × (months ÷ 12). Add that to the principal. Divide by the months.

Worked example

100,000 BDT, 12% a year, 12 months.

The reducing installment rounds to 8,885 BDT. The last row absorbs the leftover taka so the principal parts add up to 100,000.

Flat interest is 12,000 BDT. The total is 112,000 BDT.

Put both numbers on the same page. Otherwise the buyer cannot see which deal costs more.

Write this in the book

• Principal, and whether the rate is annual or monthly
• Flat or reducing
• How many months, and the first due date
• Whether a late fee exists, and that it sits outside this formula
• Who carries the rounding on the last month

The installment calculator uses the formula above. It is not a loan offer and it is not a bank or NGO term sheet.

Kisti keeps customers, schedules, payments, and dues. Pro is 200 BDT/month. The calculator is free. The app is on Google Play.