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 the principal portion increasing over the life of the loan.

2. How Does the Calculator Work?

The calculator uses these amortization formulas:

Where:

• \( Interest_k \) — Interest portion of payment k
• \( Principal_k \) — Principal portion of payment k
• \( Balance_k \) — Remaining balance after payment k
• \( r \) — Periodic interest rate (annual rate / payments per year)
• \( PMT \) — Fixed periodic payment amount

Explanation: The payment is calculated first, then each payment is split into interest (based on current balance) and principal (remainder of payment).

3. Importance of Amortization Schedule

Details: Understanding how each payment is split helps borrowers see how much they're paying in interest versus reducing principal, and plan for early payoff.

4. Using the Calculator

Tips: Enter loan amount, interest rate, term in years, and payment frequency. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between principal and interest?
A: Principal is the amount borrowed, interest is the cost of borrowing. Early payments are mostly interest, later payments are mostly principal.

Q2: How does payment frequency affect the loan?
A: More frequent payments (e.g., biweekly instead of monthly) can reduce total interest and shorten the loan term.

Q3: What happens if I make extra payments?
A: Extra payments reduce principal faster, saving interest and potentially shortening the loan term.

Q4: Why does most of my early payment go to interest?
A: Interest is calculated on the outstanding balance, which is highest at the beginning of the loan.

Q5: How can I pay less interest overall?
A: Choose a shorter loan term, make extra payments, or secure a lower interest rate.