Understanding Loan Amortization

Loan amortization shows how each payment is split between principal and interest over time. Early payments primarily cover interest, while later payments apply more to the principal.

Calculation Steps:

Monthly interest rate = Annual rate / 12
Number of payments = Loan term × 12
Monthly payment = P × r × (1 + r)^n / ((1 + r)^n - 1)
Interest payment = Remaining balance × monthly rate
Principal payment = Monthly payment - interest payment

Typical Loan Terms:

Loan Type	Typical Term	Average Rate
Mortgage	15-30 years	3-6%
Auto Loan	3-7 years	4-8%
Personal Loan	2-5 years	6-12%

Tip: Making extra principal payments early can significantly reduce total interest paid over the life of the loan.

Frequently Asked Questions

What is an amortization schedule?

A table showing each loan payment's allocation between principal and interest, and the remaining balance after each payment.

How does interest rate affect my loan?

Higher rates increase total interest paid. A 1% rate difference can cost thousands over a 30-year mortgage.

Can I pay off my loan early?

Most loans allow early repayment, but some have prepayment penalties. Check your loan agreement first.

Loan Calculator - Payments and Amortization Schedule

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Amortization Schedule

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Loan Calculator - Payments and Amortization Schedule

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