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 amortization formula:

Where:

• \( PMT \) — Monthly payment amount
• \( P \) — 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 Amortization Calculation

Details: Understanding your amortization helps with financial planning, comparing loan options, and determining how much interest you'll pay over the life of the loan.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between principal and interest?
A: Principal is the original loan amount borrowed. Interest is the cost of borrowing that money.

Q2: How can I pay less interest overall?
A: You can pay less interest by choosing a shorter loan term or making additional principal payments.

Q3: Why does most of my early payment go toward interest?
A: In the beginning, the outstanding balance is largest, so interest charges are highest. As you pay down principal, less goes toward interest.

Q4: Can I calculate amortization for weekly or biweekly payments?
A: Yes, but you'd need to adjust the rate and term to match the payment frequency.

Q5: Does this work for adjustable-rate loans?
A: This calculator assumes a fixed interest rate. Adjustable-rate loans require more complex calculations.