1. What is Loan Amortization?

Loan amortization is the process of paying off a debt over time through regular payments. Each payment covers both interest and principal, 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 amortization formulas:

Where:

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

3. Importance of Amortization Comparison

Comparing amortization schedules helps borrowers understand the true cost of different loan options, visualize how much interest they'll pay over time, and make informed decisions about loan terms.

4. Using the Calculator

Enter the loan amount, interest rate, and term for two different loans. The calculator will generate side-by-side amortization schedules showing how each payment is split between interest and principal for both loans.

5. Frequently Asked Questions (FAQ)

Q1: Why does early in the loan have more interest than principal?
A: Early payments have more interest because the balance is higher. As the balance decreases, less interest accrues each month.

Q2: How does a higher interest rate affect the loan?
A: Higher rates mean more of each payment goes to interest, less to principal, and you pay more total interest over the loan term.

Q3: What happens if I make extra payments?
A: Extra payments reduce the principal faster, decreasing total interest paid and potentially shortening the loan term.

Q4: Why compare amortization schedules?
A: Comparing helps you see the long-term cost difference between loans that might look similar at first glance.

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