The mechanism: interest on the balance
In any serious scheme, each month's interest is calculated on the outstanding balance — what you still owe, not the original amount. The difference between schemes is in how fast you bring that balance down. Slower = more months paying interest on high balances = more total interest.
French amortization: the fixed monthly payment
It is the standard in Mexico. A constant monthly payment is calculated that combines interest and principal. A real example: $500,000 at 24% per year over 24 months gives a fixed payment of $26,435.55; in the first month, $10,000 is interest and $16,435.55 is principal; in the last, almost all of it is principal. Total interest: $134,453. You can reproduce it to the cent in our simulator and download the schedule.
- Pro: a stable budget; you finish debt-free; it is the scheme that judges and credit bureaus understand best.
- Con: the initial monthly payment is higher than in rising-payment schemes.
Rising payments: relief today, the bill tomorrow
You start with low payments that increase at set intervals (by an annual percentage or in steps). It works when your income is going to grow with certainty —a business ramping up, a contract that escalates—. The cost: during the first months you amortize little or no principal, so the total interest ends up being higher than in the French scheme. In some aggressive designs, the first payments do not even cover the interest and the balance grows (negative amortization): at that point it is no longer financing, it is a snowball.
Interest-only + principal at the end (bullet)
You pay only the interest each month and return the full principal at maturity. With the same numbers from the example: a monthly payment of $10,000, a final payment of $510,000 and total interest of $240,000 — $105,547 more than the French scheme. When does it make sense? When you expect a specific inflow of liquidity (the sale of an asset, the collection of a large invoice) that will pay the principal. As a permanent strategy, it is the most expensive.
How to choose
- Stable cash flow → French. It is the cheapest of the three at the same rate and term.
- Income that will grow with certainty → rising payments, but demand the full schedule and check that each payment covers at least the interest.
- A specific future liquidity event → interest-only, with the date and source of the final payment in writing.
Whatever the scheme, ask for the amortization schedule signed as an annex to the contract: it is your snapshot of the balance in each month and your defense against creative recalculations.