1. What is a Fully Amortizing Loan?

A fully amortizing loan is a type of loan where regular payments (usually monthly) consist of both principal and interest, calculated to pay off the loan completely by the end of the term. This is the most common structure for mortgages and car loans.

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 ÷ 12)
• \( n \) — Total number of payments (loan term in years × 12)

Explanation: The formula accounts for the time value of money, ensuring each payment covers both interest and principal reduction.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It also shows the true cost of borrowing through the total interest paid over the loan term.

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 interest rate and APR?
A: The interest rate is the cost of borrowing the principal, while APR includes additional fees and costs, giving a more complete picture of loan cost.

Q2: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid. Shorter terms have higher payments but lower total interest.

Q3: What if I make extra payments?
A: Extra payments reduce the principal faster, potentially saving significant interest and shortening the loan term.

Q4: Why is my first payment mostly interest?
A: Early in the loan, the outstanding principal is largest, so interest charges are highest. Over time, more of each payment goes to principal.

Q5: Are there loans that don't fully amortize?
A: Yes, interest-only loans or balloon loans require different payment structures and calculations.