1. What is Loan Amortization?

Amortization is the process of spreading out a loan into a series of fixed payments over time. Each payment covers both principal and interest, with the interest portion decreasing and the principal portion increasing over the life of the loan.

2. How Does the Calculator Work?

The calculator uses these formulas:

Where:

• \( Interest_k \) — Interest portion of payment for period k
• \( Principal_k \) — Principal portion of payment for period k
• \( Balance_k \) — Remaining balance after period k
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( PMT \) — Fixed monthly payment amount

3. Understanding the Amortization Schedule

Details: The amortization schedule shows how each payment is split between principal and interest, and how the loan balance decreases over time. Early payments are mostly interest, while later payments are mostly principal.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, and loan term (72 months by default). The calculator will show your monthly payment, total interest, and complete amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of my early payment go toward interest?
A: This is how amortization works - interest is calculated on the outstanding balance, which is highest at the beginning of the loan.

Q2: How can I pay less interest overall?
A: You can make additional principal payments or choose a shorter loan term to reduce total interest paid.

Q3: What happens if I make extra payments?
A: Extra payments directly reduce the principal, which means you'll pay less interest over the life of the loan and may pay off the loan early.

Q4: Why is my monthly payment slightly different from what the calculator shows?
A: Lenders may use slightly different rounding methods or add fees that affect the final payment amount.

Q5: Can I use this for other types of loans?
A: While designed for auto loans, this calculator works for any fixed-rate, fully amortizing loan (mortgages, personal loans, etc.).