Loan Amortization Schedule

Loan Payment Formula:

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

Monthly Payment (PMT):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is a Loan Amortization Schedule?

A loan amortization schedule is a complete table of periodic loan payments, showing the amount of principal and interest that comprises each payment until the loan is paid off at the end of its term. Each payment is the same amount, but the proportion of interest to principal changes over time.

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 payments (loan term in years × 12)
\( PMT \) — Monthly payment amount (USD)

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

3. Importance of Amortization

Details: Understanding amortization helps borrowers see how much of each payment goes toward interest versus principal, plan for refinancing, and understand the true cost of borrowing.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. The calculator will show the monthly payment and generate a full amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of the early payment go toward interest?
A: In the early stages of a loan, the outstanding balance is highest, so the interest portion of the payment is larger. As the balance decreases, more of each payment goes toward principal.

Q2: How can I pay less interest overall?
A: Making extra principal payments reduces the outstanding balance faster, which reduces total interest paid over the life of the loan.

Q3: What's the difference between simple and amortized loans?
A: Simple interest loans charge interest only on the principal, while amortized loans include both principal and interest in each payment.

Q4: How does loan term affect payments?
A: Longer terms mean smaller monthly payments but more total interest paid. Shorter terms have higher payments but less total interest.

Q5: Can I generate a full amortization schedule?
A: Yes, this calculator shows the complete breakdown of each payment over the life of the loan.