Updated 31 October 2026
A sacco loan calculator on reducing balance charges interest only on the amount you still owe each month, so your interest falls as you repay. Most Kenyan saccos quote loan rates per month on a reducing balance, for example 1% a month (12% a year). This guide gives you the formula, a worked example you can check by hand, and a comparison with flat-rate loans so you can tell whether a quote is fair.
Updated October 2026.
What “reducing balance” means
With a reducing balance loan, each monthly repayment has two parts: interest on the outstanding balance, and principal. Because the balance shrinks every month, the interest part shrinks too, and more of each instalment goes to clearing the loan.
With a flat rate loan, interest is worked out once on the original amount for the whole term, even though you are paying it down. At the same quoted rate, a flat loan always costs more.
The sacco loan calculator formula (reducing balance)
For equal monthly instalments, the standard formula is:
Instalment = P × r ÷ (1 − (1 + r)−n)
- P = loan amount
- r = monthly interest rate as a decimal (1% a month = 0.01; 12% a year ÷ 12 = 0.01)
- n = number of months
In Excel or Google Sheets, use =PMT(0.01,12,-100000) for a KSh100,000 loan at 1% a month over 12 months.
Worked example: KSh100,000 at 1% a month for 12 months
Monthly instalment: KSh8,884.88. Total paid: KSh106,618.55. Total interest: KSh6,618.55.
| Month | Interest (1% of balance) | Principal repaid | Balance after payment |
|---|---|---|---|
| 1 | KSh1,000.00 | KSh7,884.88 | KSh92,115.12 |
| 2 | KSh921.15 | KSh7,963.73 | KSh84,151.39 |
| 3 | KSh841.51 | KSh8,043.36 | KSh76,108.03 |
Notice the interest falls every month while the instalment stays the same.
Reducing balance vs flat rate: same loan, different cost
| Loan | Reducing balance at 1%/month | Flat rate at 1%/month |
|---|---|---|
| KSh100,000 over 12 months | Interest KSh6,618.55 | Interest KSh12,000 |
| KSh300,000 over 24 months | Interest KSh38,929; instalment KSh14,122.04 | Interest KSh72,000 |
A flat rate of 1% a month costs nearly double the interest on a 12-month loan. That is why you must always ask which method a lender uses.
Other costs to add
The interest rate is not the full cost. Saccos often charge:
- loan processing or appraisal fees, usually a percentage of the loan;
- loan insurance (loan protection) premiums;
- excise duty on fees, where it applies;
- refinancing or top-up charges if you clear one loan with another.
Our sacco loan comparison for 2026 lists rates, loan multiples and fees for major saccos.
How much can you borrow?
Most saccos lend a multiple of your deposits (commonly three or four times) and check that your payslip can carry the instalment. Employers apply the one-third rule: your net pay after all deductions should not fall below one-third of basic pay. Use the formula above to see the instalment, then check it fits.
How to check your sacco’s quote
- Ask for the rate per month and the method (reducing balance or flat).
- Ask for the full repayment schedule, not just the instalment.
- Add all fees deducted at disbursement.
- Run the numbers in a spreadsheet with PMT and compare total cost, not just the instalment.
If you are comparing a sacco with a bank, see cheapest bank loans in Kenya. Thinking of joining a sacco? Our Imarisha Sacco guide shows typical joining steps.
FAQ
How do I calculate a sacco loan on reducing balance?
Use Instalment = P × r ÷ (1 − (1 + r)−n), where r is the monthly rate and n the number of months, or the PMT function in Excel.
Is 1% per month the same as 12% per year?
Yes, on a reducing balance it is quoted as 12% a year. The effective annual cost is slightly higher because of monthly compounding.
Which is cheaper, flat rate or reducing balance?
Reducing balance. At the same quoted rate, a flat-rate loan charges interest on money you have already repaid.
Why does my first instalment have the most interest?
Because the balance is highest at the start. Interest falls as the balance reduces.
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