Loan Amortization Calculator
Calculate monthly loan payments and see a full amortization schedule.
Discover how much you'll pay each month for a loan and see exactly how much goes toward principal versus interest over time.
| Year | Principal Paid | Interest Paid | Remaining Balance |
|---|---|---|---|
| Year 1 | $3,611.11 | $834.84* | $16,388.89 |
| Year 2 | $3,795.86 | $645.83* | $12,593.04 |
| Year 3 | $3,990.06 | $447.16* | $8,602.98 |
| Year 4 | $4,194.2 | $238.32* | $4,408.78 |
| Year 5 | $4,408.78 | $18.79* | $0 |
What is Loan Amortization?
Amortization is an accounting technique used to periodically lower the book value of a loan or an intangible asset over a set period of time. In the case of a loan, amortization focuses on spreading out loan payments over time.
When you take out a mortgage, car loan, or personal loan, you typically make fixed monthly payments. This calculator shows how those payments are applied to your loan balance. Early in the loan, a large portion of each payment goes toward interest. As the balance decreases, a larger portion of your payment goes toward paying off the principal.
Why Use an Amortization Schedule?
An amortization schedule provides several key insights into your debt:
- Interest Cost: You can see exactly how much total interest you will pay over the life of the loan.
- Payoff Date: It confirms the date when your debt will be completely paid off.
- Principal vs. Interest: You can track how much of each payment is actually reducing your debt vs. paying the lender's profit.
The Mathematical Formula
The monthly payment (M) is calculated using the standard formula for a fixed-rate loan:
► M = P [ i(1 + i)n ] / [ (1 + i)n – 1 ]
Where:
- P = The principal loan amount (the amount you borrowed).
- i = The monthly interest rate (calculated as the annual rate divided by 12).
- n = The total number of payments (months).
How to Lower Your Total Loan Cost?
- Refinance: If interest rates drop, refinancing to a lower rate can save you thousands in interest.
- Shorten the Term: Choosing a 15-year mortgage instead of a 30-year one significantly reduces the total interest paid, though it increases monthly payments.
- Extra Payments: Any extra payment you make goes directly toward the principal, reducing the amount of interest you'll be charged in all subsequent months.
- Larger Down Payment: Borrowing less money from the start means less interest accrued over time.
Common Terms
- Principal: The original sum of money borrowed in a loan.
- Interest: The cost of borrowing money, usually expressed as an annual percentage rate (APR).
- Term: The amount of time you have to pay back the loan (e.g., 36 months, 30 years).
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