How a loan is paid back

Tomaž has paid his €200,000 home loan for 5 years: 60 payments of €1,055.67, or about €63,340. If every euro had reduced the debt, he would owe about €136,660. His statement says €174,209. Where did the money go?

Every payment has two parts

Each payment on a loan is split in two:

• Interest — this month’s charge on what you still owe.
• Principal — the part that actually reduces the debt.

At the start you owe the most, so the interest part is large. Tomaž’s first payment was €666.67 interest and only €389 principal. Over 5 years he paid about €37,550 in interest and only about €25,790 off the debt.

A month-by-month list of this split is called an amortisation table (in Slovenian, amortizacijski načrt). It shows each payment, its interest part, its principal part and the balance left.

Annuity: the same payment every month

With annuity repayment, every payment is the same. Early on, most of it is interest. As the debt shrinks, the interest part falls and the principal part grows. Most consumer loans and home loans in Slovenia and the rest of Europe work this way.

Linear: the same principal every month

With linear repayment, you repay the same slice of principal each month, plus interest on what is left. On the €6,000 loan that is €500 of principal every month. The first payment is €500 + €30 = €530, the second €527.50, and the last €502.50. Total interest: €195.00.

The saving is small on a short loan, but large on a long one. On a €200,000 loan at 4% over 25 years, linear repayment costs about €100,333 in interest against €116,702 for the annuity. But the first linear payment is €1,333.33, about €278 more than the annuity.

A longer term: lower payment, higher total

Stretching a loan over more years lowers each payment, but you pay interest for longer.

For a €200,000 home loan at 4%, choosing 30 years instead of 25 lowers the payment by about €101 a month, but adds about €27,037 of interest.

Paying back early

EU law lets you repay consumer credit early, in full or in part. The interest and costs for the remaining time are then reduced. For fixed-rate loans the lender may ask for capped compensation.

In Slovenia in 2026, under the consumer-credit law (ZPotK-2), the early repayment fee on a fixed-rate consumer loan:

• may not exceed 1% of the amount repaid if more than one year is left, or 0.5% if one year or less is left;
• may only be charged if you repay more than €10,000 early within 12 months;
• may not exceed the interest you would have paid;
• is not allowed at all for periods with a variable rate.

Home loans have their own rules, so check your contract. After a partial repayment, banks usually offer two options: keep the payment and shorten the term, or keep the term and lower the payment. Keeping the payment saves more interest.