1. What is Loan Amortization?

Loan amortization is the process of paying off a debt over time through regular payments. Each payment covers both principal and interest, with the interest portion decreasing over time while the principal portion increases.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula calculates the fixed payment amount required to fully pay off a loan over its term, accounting for compound interest.

3. Importance of Amortization

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

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 5.25), and loan term in years. The calculator will show your monthly payment and total loan cost.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of my early payment go to 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 refinance to a lower interest rate when possible.

Q3: Are these calculations accurate for all loan types?
A: This works for standard fixed-rate loans. Adjustable-rate, interest-only, or balloon loans have different payment structures.

Q4: Why does Credit Karma show different rates?
A: Rates vary by lender and depend on your credit score, loan type, and market conditions.

Q5: How often should I check my amortization schedule?
A: Review it annually or whenever considering refinancing or making extra payments.