Loan Amortization Schedule Calculator

Loan Payment Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Monthly Payment (PMT):

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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 the standard loan payment formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Where:

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

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 Schedule

Details: An amortization schedule shows the breakdown of each payment into principal and interest components, helping borrowers understand how much they're paying in interest over the life of the loan and how their balance decreases over time.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 5.25), and loan term in years. The calculator will show your monthly payment and full 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 (Annual Percentage Rate) includes the interest rate plus other loan fees.

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 when possible.

Q3: Why does most of my early payment go toward interest?
A: In the beginning, your balance is highest, so the interest portion is largest. As you pay down principal, the interest portion decreases.

Q4: What happens if I make extra payments?
A: Extra payments directly reduce principal, which can significantly reduce total interest and 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 their terms.