1. What is Car Loan Amortization?

Car loan amortization is the process of paying off a car loan with regular payments over time. Each payment covers both interest and principal, with the interest portion decreasing and principal portion increasing over the life of the loan.

2. How Does the Calculator Work?

The calculator uses these amortization 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 payment k
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( PMT \) — Fixed monthly payment amount

3. Understanding the Amortization Schedule

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

Enter the loan amount, annual interest rate, and loan term in years. The calculator will show the monthly payment 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: Make extra principal payments, choose a shorter loan term, or negotiate a lower interest rate.

Q3: What's the difference between APR and interest rate?
A: APR includes both the interest rate and any loan fees, giving a more complete picture of the loan cost.

Q4: Should I make a large down payment?
A: A larger down payment reduces the loan amount and total interest paid, and may qualify you for better rates.

Q5: How does refinancing affect amortization?
A: Refinancing resets the amortization schedule, typically extending the loan term unless you refinance to a shorter term.