1. What is an Amortizing Loan?

An amortizing loan is a type of loan with scheduled, periodic payments that consist of both principal and interest. With each payment, the principal balance decreases until it reaches zero at the end of the loan term.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

• \( PMT \) — Monthly payment amount
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (loan term in years × 12)

Explanation: The formula calculates the fixed monthly payment required to fully pay off the loan over its term, accounting for both principal and interest.

3. Importance of Loan Amortization

Details: Understanding amortization helps borrowers see how much of each payment goes toward principal vs. interest, plan for refinancing, and compare different loan options.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as a percentage), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between amortizing and non-amortizing loans?
A: Amortizing loans reduce principal with each payment, while non-amortizing loans (like interest-only loans) don't reduce principal during the term.

Q2: How does a longer loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q3: Can I calculate payments for weekly or bi-weekly schedules?
A: Yes, adjust the rate (divide annual rate by number of periods per year) and term (multiply years by periods per year).

Q4: Why does early loan payoff save money?
A: Early payments apply more to interest; later payments apply more to principal. Paying early reduces the principal faster, saving interest.

Q5: How accurate is this calculator?
A: It provides standard amortization calculations. Actual loans may include fees or other charges not accounted for here.