1. What is a Loan Amortization Table?

A loan amortization table shows the breakdown of each payment into principal and interest components over the life of the loan. It helps borrowers understand how much of each payment goes toward reducing the principal versus paying interest.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

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

3. Importance of Amortization

Details: Understanding amortization helps borrowers see the true cost of loans, plan for refinancing, and make informed decisions about extra payments.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage, and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of the early payment go toward interest?
A: Interest is calculated on the outstanding balance, which is highest at the beginning of the loan term.

Q2: How can I pay less interest overall?
A: Making additional principal payments reduces the outstanding balance faster, thereby reducing total interest paid.

Q3: What's the difference between APR and interest rate?
A: APR includes both interest rate and any loan fees, representing the true annual cost of borrowing.

Q4: Are there loans that don't amortize?
A: Yes, interest-only loans and balloon loans have different payment structures.

Q5: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.