Loan Amortization Calculator

Loan Amortization Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Monthly Payment:

Total Payment:

Total Interest:

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1. What is Loan Amortization?

Loan amortization is the process of spreading out a loan into a series of fixed payments over time. Each payment consists of both principal and interest, 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:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Where:

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

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

3. Importance of Loan Amortization

Details: Understanding loan amortization helps borrowers see how much of each payment goes toward interest vs. principal, plan for the total cost of borrowing, and make informed decisions about loan terms.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, and loan term in years. The calculator will show your monthly payment, total repayment amount, and total interest paid over the life of the loan.

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 the interest rate plus other loan fees.

Q2: How can I pay less interest on my loan?
A: Make larger payments, pay more frequently, or choose a shorter loan term to reduce total interest.

Q3: What's an amortization schedule?
A: A table showing each payment's breakdown into principal and interest, and the remaining balance after each payment.

Q4: Does this work for all types of loans?
A: This calculator works for fixed-rate loans. Adjustable-rate loans or interest-only loans require different calculations.

Q5: Why does most of my early payment go toward interest?
A: In the beginning, your balance is highest, so the interest portion is largest. As you pay down principal, the interest portion decreases.