1. What is Amortization?

Amortization is the process of spreading out a loan into fixed payments over time. Each payment covers both principal and interest, with the interest portion decreasing and principal portion increasing over the loan term.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

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

Explanation: The formula calculates the fixed payment needed to completely pay off a loan over its term, accounting for compound interest.

3. Understanding the Results

Monthly Payment: The fixed amount you'll pay each month.
Total Payment: Sum of all payments over the loan term.
Total Interest: The extra amount paid beyond the principal.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 3.5 for 3.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does extra principal payment affect amortization?
A: Extra payments reduce the principal faster, decreasing total interest paid and potentially shortening the loan term.

Q2: What's the difference between APR and interest rate?
A: APR includes both interest rate and any loan fees, giving a more complete cost picture.

Q3: Why are early payments mostly interest?
A: With more principal outstanding early on, more interest accrues each month.

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

Q5: Can this calculator handle adjustable rates?
A: No, this calculator assumes a fixed interest rate for the entire loan term.