Finance & Business
Amortization Calculator
Calculate your loan payments, view amortization schedules, and understand the total cost of borrowing.
Enter loan details to see amortization schedule and payment breakdown
Related to Amortization Calculator
The amortization calculator uses a standard financial formula to determine your loan payments and create a detailed amortization schedule. It takes three primary inputs: the loan amount, annual interest rate, and loan term in years. Using these values, it calculates your monthly payment and breaks down how each payment is applied to both principal and interest over the life of the loan.
The Amortization Formula
The monthly payment is calculated using the formula: PMT = P[r(1 + r)^n]/[(1 + r)^n - 1], where:
• P = Principal loan amount
• r = Monthly interest rate (annual rate divided by 12)
• n = Total number of months (years × 12)
Each monthly payment consists of two parts: principal and interest. Initially, a larger portion of each payment goes toward interest, but as the loan balance decreases over time, more of each payment is applied to the principal. This process, known as amortization, ensures that the loan will be fully paid off by the end of the term.
The calculator provides a comprehensive view of your loan repayment through several key metrics and visualizations. The results include your monthly payment amount, total interest cost, and total payment over the life of the loan. The interactive graph shows how your loan balance decreases over time and how much interest you've paid, helping you understand the long-term impact of your loan.
Key Metrics Explained
• Monthly Payment: The fixed amount you'll pay each month
• Total Interest: The total cost of borrowing over the loan term
• Total Payment: The sum of all payments (principal + interest)
• Amortization Schedule: Shows how each payment is split between principal and interest
The visualization helps you understand how your loan balance decreases over time and how much interest you'll pay throughout the loan term. This information is particularly useful for making informed decisions about loan terms, refinancing options, or additional principal payments.
1. What is loan amortization?
Loan amortization is the process of paying off a debt over time through regular payments. Each payment includes both principal and interest, with the proportion of principal increasing over time while the interest portion decreases.
2. Why does more interest get paid at the beginning of the loan?
Interest is calculated based on the remaining loan balance. Since the balance is highest at the start of the loan, more interest is charged initially. As you make payments and reduce the principal balance, the interest portion of each payment decreases.
3. Can I pay off my loan early?
Yes, making extra payments toward the principal can significantly reduce the total interest paid and shorten the loan term. However, check your loan agreement for any prepayment penalties before making extra payments.
4. How can I reduce my total interest cost?
You can reduce total interest by choosing a shorter loan term, securing a lower interest rate, making extra principal payments, or making bi-weekly instead of monthly payments. Each strategy can significantly impact the total cost of borrowing.
5. What is the scientific source for this calculator?
This calculator uses the standard amortization formula widely accepted in financial mathematics and banking. The formula is derived from the time value of money principle and compound interest calculations, as documented in financial textbooks and the International Financial Reporting Standards (IFRS). The methodology follows the actuarial method of loan amortization, which is the industry standard for calculating loan payments and is used by financial institutions worldwide. The calculations comply with the standards set by the Financial Accounting Standards Board (FASB) and are consistent with the principles outlined in advanced financial mathematics texts.