1. What is an Amortization Schedule?

An amortization schedule is a table showing each loan payment's allocation between principal and interest over the life of the loan. It demonstrates how payments reduce the loan balance over time.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

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

Explanation: The formula calculates the fixed monthly payment required to pay off the loan over the specified term, accounting for compound interest.

3. Importance of Amortization

Details: Understanding amortization helps borrowers see how much interest they'll pay over the loan term and how extra payments can reduce total interest costs.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage, 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 early payment go mostly 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?
A: Make extra principal payments, refinance at a lower rate, or choose a shorter loan term.

Q3: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while the interest rate is just the cost of borrowing the principal.

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

Q5: How does amortization work for adjustable-rate loans?
A: Payments recalculate when the rate adjusts, potentially changing the loan term unless payments are adjusted.