Loan Amortization Calculator With Payments

Amortization Formulas:

\[ Interest_k = Balance_{k-1} \times r \] \[ Principal_k = PMT - Interest_k \] \[ Balance_k = Balance_{k-1} - Principal_k \]

Monthly Payment:

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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 and principal portion increasing over the life of the loan.

2. How Does the Calculator Work?

The calculator uses these amortization formulas:

\[ Interest_k = Balance_{k-1} \times r \] \[ Principal_k = PMT - Interest_k \] \[ Balance_k = Balance_{k-1} - Principal_k \]

Where:

\( Interest_k \) — Interest portion of payment k
\( Principal_k \) — Principal portion of payment k
\( Balance_k \) — Remaining balance after payment k
\( r \) — Monthly interest rate (annual rate / 12)
\( PMT \) — Fixed monthly payment amount

Explanation: The calculator first determines the fixed monthly payment needed to pay off the loan, then breaks down each payment into interest and principal components.

3. Importance of Amortization

Details: Understanding amortization helps borrowers see how much of each payment goes toward interest versus principal, and how extra payments can reduce total interest paid and shorten the loan term.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, and loan term in years. The calculator will show the monthly payment and full amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: What happens if I make extra payments?
A: Extra payments reduce the principal faster, which decreases total interest paid and may shorten the loan term.

Q2: Why does most of my early payment go toward interest?
A: Early in the loan, the balance is highest so interest charges are largest. As the balance decreases, more of each payment goes toward principal.

Q3: How does interest rate affect my payments?
A: Higher rates increase both your monthly payment and total interest paid over the life of the loan.

Q4: What's the difference between amortized and interest-only loans?
A: Amortized loans pay both principal and interest, while interest-only loans only pay interest for a period before principal payments begin.

Q5: Can I use this for mortgages, car loans, and personal loans?
A: Yes, this calculator works for any fixed-rate, fully amortizing loan.