1. What is Loan Amortization?

Loan amortization is the process of spreading out a loan into a series of fixed payments over time. Each payment consists of both principal and interest, with the interest portion decreasing and principal portion increasing over the life of the loan.

2. How Does the Calculator Work?

The calculator uses the standard 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 monthly payment required to fully repay a loan over its term, accounting for compound interest.

3. Importance of Loan Amortization

Details: Understanding loan amortization helps borrowers see how much of each payment goes toward principal vs. interest, plan for refinancing, and compare different loan options.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage, 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 amortized and interest-only loans?
A: Amortized loans pay both principal and interest each period, while interest-only loans defer principal payments.

Q3: How does loan term affect monthly payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q4: Are there loans that don't amortize?
A: Yes, balloon loans and interest-only loans don't fully amortize over their terms.

Q5: How accurate is this calculator?
A: It provides standard amortization calculations but doesn't account for fees, variable rates, or payment timing variations.