How is loan interest calculated?
Azerbaijani banks use the annuity method for consumer loans: interest is charged monthly on the outstanding balance, while the monthly payment stays the same for the whole term. In the early months most of the payment goes to interest, later mostly to principal. For example, 5,000 AZN over 24 months at 18% a year gives a payment of about 250 AZN and total overpayment of about 990 AZN.
Understanding how interest is calculated protects you from two mistakes: thinking "18% a year = 18% total" and being misled by the nominal rate. In the annuity formula the monthly payment is derived from the amount, the term and the monthly rate. Adding fees and insurance gives the effective rate. Below we give the formula, an example and the comparison rule.
What you need
- 1 Loan amount, term (months) and annual rate
- 2 One-off fee (if any) and insurance premium
- 3 Repayment schedule (provided by the bank with the contract)
- 4 Effective annual rate (mandatory in the contract)
Bank offers that fit this case
| Bank | Loan | Rate | Term | |
|---|---|---|---|---|
Rabitəbank
|
Nağd Pul Krediti | 10.5% | 48 mo. | Details |
Unibank
|
Nağd Kredit | 9% | 60 mo. | Details |
Yelo Bank
|
İstehlak Krediti | 8.9% | 59 mo. | Details |
|
Yelo Bank
|
Onlayn Kredit | 8.9% | 59 mo. | Details |
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TBC Kredit BOKT
|
İstehlak Krediti | 18%-dən başlayaraq% | 36 ayadək mo. | Details |
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VTB Bank
|
VTB Nağd Kredit | 9.5% | 59 mo. | Details |
Xalq Bank
|
Təmir Krediti | 12% | 59 mo. | Details |
|
TBC Kredit BOKT
|
Girovlu Kredit | 18%-dən başlayaraq% | 60 ayadək mo. | Details |
Sample calculation
Estimated figures for 5 000 AZN over 24 months at ~8.9% effective rate. The exact number depends on the bank.
How to apply?
What to watch for?
- ✓ Multiply the monthly payment by the term and subtract the amount: that is your real overpayment, and it matters more than the rate figure.
- ✓ Stretching the term from 12 to 36 months lowers the payment but can double or triple the overpayment.
- ✓ If the fee is deducted from the amount, you receive less cash while interest accrues on the full amount: the effective rate rises.
- ✓ Use the Mani.az calculator to compare several scenarios side by side.
Frequently asked questions
What is the difference between annuity and differentiated payments?
With annuity the monthly payment is fixed; with differentiated payments the principal is split equally and interest declines, so early payments are large and later ones small. Annuity is the standard for consumer loans in Azerbaijan.
Is interest calculated daily?
Interest is usually accrued daily on the outstanding balance at the annual rate and included in the monthly payment. That is why early repayment reduces the interest for the remaining months.
Is a "0% loan" really free?
In instalment campaigns the seller pays the interest, but the goods are sometimes priced above the cash price and a fee may apply. Compare with the cash price.
Related questions
Suitable loan types
Useful links
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