1. What is an Amortized Loan?

An amortized loan is a loan with scheduled periodic payments that consist of both principal and interest. With each payment, you pay down part of the principal while also covering the interest on the remaining balance.

2. How Does the Calculator Work?

The calculator uses the amortized loan payment 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: This formula calculates the fixed monthly payment required to fully pay off a loan over its term, including both principal and interest.

3. Understanding Loan Payments

Details: Early in the loan term, most of each payment goes toward interest. As the loan matures, more of each payment is applied to the principal. This is known as amortization.

4. Using the Calculator

Tips: Enter the loan amount (principal), annual interest rate, and loan term in years. The calculator will show your monthly payment, total repayment amount, and total interest paid.

5. Frequently Asked Questions (FAQ)

Q1: How does a higher interest rate affect payments?
A: Higher rates increase both the monthly payment and total interest paid over the life of the loan.

Q2: What's the benefit of a shorter loan term?
A: Shorter terms mean higher monthly payments but significantly less total interest paid.

Q3: How can I pay less interest overall?
A: Make additional principal payments when possible to reduce the loan balance faster.

Q4: Are there different types of amortized loans?
A: Yes, common types include fixed-rate mortgages, auto loans, and personal loans.

Q5: What's the difference between APR and interest rate?
A: APR includes both interest rate and any additional fees, giving a more complete picture of loan cost.