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 amortization 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 calculates the fixed monthly payment required to fully amortize a loan over its term, accounting for compound interest.

3. Importance of Loan Amortization

Details: Understanding amortization helps borrowers see how much of each payment goes toward interest versus principal, plan for the total cost of borrowing, and evaluate different loan options.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does a longer loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q2: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing, while APR includes fees and other loan costs to show the true annual cost.

Q3: How can I pay less interest overall?
A: Make additional principal payments when possible, choose a shorter loan term, or secure a lower interest rate.

Q4: Why does most of my early payment go toward interest?
A: With amortizing loans, interest is calculated on the outstanding balance, which is highest at the beginning of the loan term.

Q5: Can I calculate amortization for weekly or biweekly payments?
A: Yes, adjust the rate (divide annual rate by payment frequency) and term (multiply years by payment frequency) accordingly.