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 as the principal balance is reduced.

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)
• \( n \) — 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. Understanding the Results

Details: The results show your monthly payment, total interest paid over the life of the loan, and a detailed amortization schedule showing how each payment is split between principal and interest.

4. Using the Calculator

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

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 additional fees and costs associated with the loan.

Q2: How can I pay less interest overall?
A: You can pay less interest by choosing a shorter loan term, making extra principal payments, or securing a lower interest rate.

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

Q4: What happens if I make extra payments?
A: Extra payments directly reduce principal, which decreases total interest paid and may shorten the loan term.

Q5: Are there loans that don't amortize?
A: Yes, interest-only loans and balloon loans have different payment structures that don't fully amortize over the term.