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 principal portion increasing over the life of the loan.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

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

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

3. Understanding the Results

Details: The calculator shows your monthly payment, total payment over the loan term, and total interest paid. Understanding these numbers helps in financial planning and loan comparison.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: How does loan term affect my payment?
A: Longer terms reduce monthly payments but increase total interest paid. Shorter terms mean higher monthly payments but less total interest.

Q2: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing principal, while APR includes fees and other loan costs to give a more complete picture.

Q3: Can I pay off my loan early?
A: Most loans allow early payoff, but some have prepayment penalties. Check your loan agreement.

Q4: Why does most of my early payment go to interest?
A: With amortizing loans, interest is calculated on the current balance, so early payments have more interest since the balance is higher.

Q5: How can I reduce total interest paid?
A: Make extra principal payments, refinance to a lower rate, or choose a shorter loan term.