What is a declining-balance loan (قرض متناقص)?

A declining-balance loan repays a fixed slice of principal in every period plus interest charged only on the remaining balance. The total installment shrinks period after period because interest is calculated on a smaller balance each time. Iraqi banks and Islamic finance institutions use this structure heavily for car loans, home loans, and SME financing.

Why do Iraqi banks prefer declining-balance loans?

Two reasons: it matches Sharia-compliance requirements for many Islamic banks (the profit slice is transparent and tied to the remaining balance), and total interest paid is lower than a flat-payment amortising loan of the same rate and term. The borrower pays more upfront but less over the loan's life.

How does it compare to a fixed-installment mortgage?

A fixed-installment (annuity) mortgage has the same monthly payment throughout — easier to budget. A declining-balance loan has a higher first payment but a lower total interest bill, often 15-25 percent less interest paid for the same rate and term. The calculator shows both first and last installments so you can compare directly.

Decremental (Declining-Balance) Loan Calculator

Installment by period

First installment

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Last installment

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Average installment

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Total paid

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Total interest

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Period-by-period breakdown

Period	Installment	Principal	Interest	Remaining balance

The principal portion of each installment is the same; interest is charged on the remaining balance, so both the interest charge and the total installment shrink every period.

This calculator is for educational purposes only and is not investment advice. Rates shown are assumed values and do not guarantee future returns.