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 standard loan payment formula:

Where:

• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of payments (term in years × 12)
• \( PMT \) — Monthly payment amount

Explanation: The formula calculates the fixed monthly payment required to fully repay a loan over its term, accounting for compound interest.

3. Understanding the Payment Schedule

Details: In an amortizing loan, early payments consist mostly of interest, while later payments apply more toward the principal. This creates a predictable schedule for debt repayment.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate (as a percentage), and loan term in years. The calculator will show your monthly payment, total repayment amount, and total interest paid.

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 additional fees to show the true cost of the loan.

Q3: Can I pay off my loan early?
A: Most loans allow early repayment, but some may have prepayment penalties - check your loan agreement.

Q4: How does extra principal payment affect my loan?
A: Extra payments reduce the principal faster, saving interest and potentially shortening the loan term.

Q5: What types of loans use amortization?
A: Mortgages, auto loans, personal loans, and most installment loans use amortization schedules.