What loan does your payment support — and what a fee takes off it

The payment is the input, the amount is the answer

amount = payment × (1 − (1 + monthly rate)^−instalments) ÷ monthly rate

When a bank works out an instalment it knows the amount. When you plan, you know the instalment — what you can set aside each month. This is the same annuity formula read backwards, and it gives the amount that payment repays over the term.

The table below holds the 5% rate and the 20-year term still and changes only the payment. The relationship is a straight line: twice the payment supports twice the loan. That is useful, because it shows what each additional 150 KM a month is worth without recalculating anything.

What is not a straight line is the interest inside the total — it grows with the amount, so a larger loan always means more interest paid across the same term.

Same payment, different rate and term

The rate is the first thing that moves the answer. A 600 KM payment at 5% supports 90,915.19 KM; at 6% it supports 83,748.46 KM. That is 7,166.73 KM of borrowing for one percentage point — which is why it pays to collect offers before settling on an amount.

The term works the other way. At the same payment and rate, fifteen years instead of twenty supports 75,873.15 KM, so a smaller loan. But the total interest falls from 53,084.81 KM to 32,126.86 KM — nearly 21,000 KM less. A shorter term means a smaller amount and a markedly cheaper loan; a longer term means a bigger amount and a dearer one at the same monthly commitment.

Neither figure is „better“ on its own. The question is which you need: the largest amount for a purchase, or the lowest total cost.

The fee that repays nothing

If the bank charges a monthly loan-administration fee alongside the instalment, it repays no principal — it is paid next to the loan. With a 4 KM monthly fee, 596 KM of the 600 KM you set aside services the loan, so the amount falls from 90,915.19 KM to 90,309.09 KM.

Across 240 instalments that fee is 960.00 KM. The borrowing it costs you is 606.10 KM — less than the fee itself, because part of the difference is interest that is never charged on the amount you did not borrow. Either way it is money leaving your budget that does not reduce the debt.

So look for the fees next to the rate in any offer: loan processing, monthly administration, insurance and a property valuation are not part of the nominal rate, but they are part of what you pay.

What the payment does not decide

The amount you calculate is not an approval. The bank looks at income, existing debts, employment and security, and decides by its own criteria how much it can lend — two banks can offer the same person different amounts.

Nor is there a universal rule about what share of a salary may go to an instalment. Such percentages get repeated a lot, but they are each bank's internal policy and they differ from country to country, so we deliberately do not state one. You judge the payment, against what is left once existing obligations are covered.

And finally: everything here uses the nominal rate. The effective rate (APR, EKS here) also includes fees; the bank calculates and states it under its banking agency's methodology. According to the Central Bank of BiH, it must be communicated to you before the contract is signed — that is the figure to compare between banks.

How a loan instalment is calculated: formula and example →