Just​‍​‌‍​‍‌​‍​‌‍​‍‌ picture having a money GPS that tells you the exact place where each of your loan payment dollars goes every month until you are totally free of debt. This is exactly what our amortization calculator provides a clear, in-depth view of your loan's travel from the very beginning to the end. In contrast to simple loan calculators that just display your monthly payments, this instrument uncovers the secret story of your debt, thus, it shows you the division of each payment into the principal and interest parts so that you can understand the actual cost of the ​‍​‌‍​‍‌​‍​‌‍​‍‌loan.

This​‍​‌‍​‍‌​‍​‌‍​‍‌ calculator distinguishes itself with its capability to change complicated financial math into understandable and usable insights. If you are planning to purchase your first home, refinance an existing mortgage, or think about getting an auto loan, knowing how your payments are structured can be very beneficial to you, up to the extent of making you save thousands of dollars over the life of your loan. The calculator is not a mere number crunching tool it is a financial decision-making tool that you can use more wisely when it demonstrates to you the future effects of varying loan terms, interest rates, and payment ​‍​‌‍​‍‌​‍​‌‍​‍‌strategies.

Our​‍​‌‍​‍‌​‍​‌‍​‍‌ amortization calculator has been designed to suit your particular case with the feature of different currencies and flexible loan terms. By utilizing charts, you can get a clear idea of your loan, save payment schedules, and study different cases to decide which loan structure will work best for your financial goals. Besides being entirely free of charge and not requiring any registration, it is very fast in providing the results which are the main reasons for you to have the borrowing decisions under your control with confidence and ​‍​‌‍​‍‌​‍​‌‍​‍‌clarity.

How to Calculate an Amortization Schedule

Making​‍​‌‍​‍‌​‍​‌‍​‍‌ an amortization schedule could be perceived as complex, however, it is based on a simple mathematical process that is comprehensible to any person. Essentially, the schedule is a chart that depicts the portion of each payment that goes towards the principal and the interest, as well as the gradual reduction of your outstanding balance. The calculation of the loan payments to principal and interest and the remaining balance after each payment is made follows this process in ​‍​‌‍​‍‌​‍​‌‍​‍‌detail.

The​‍​‌‍​‍‌​‍​‌‍​‍‌ very first thing is to work out your monthly payment by utilizing the conventional loan payment formula. After that, with the help of that steady monthly payment, you proceed to calculating every row of the schedule. For every payment period, you initially figure out the interest part which is obtained by multiplying your current loan balance by the monthly interest rate (annual rate divided by 12). The principal part is just your overall monthly payment less the interest part. Your latest balance is the old balance less the principal payment you have just ​‍​‌‍​‍‌​‍​‌‍​‍‌made.

This​‍​‌‍​‍‌​‍​‌‍​‍‌ goes on for each payment period until your balance is zero. What is really interesting is the way the proportions change: at the beginning of the loan, when your balance is still high, the interest part is the one that most of the time is dominating. In fact, as you move along the schedule, the principal part is getting bigger and bigger while the interest part is getting smaller because the interest is calculated on a smaller and smaller balance. The schedule is such that at the last payment your balance is zero and you have paid back the full principal plus the total ​‍​‌‍​‍‌​‍​‌‍​‍‌interest.

You​‍​‌‍​‍‌​‍​‌‍​‍‌ could figure this out by hand with a spreadsheet, but our calculator is much quicker and more convenient. Just put in the amount of your loan, the interest rate, and the term, and you'll receive a full schedule displaying each payment from the beginning to the end. It gives you the opportunity to recognize patterns, make plans for the future, and have a clear idea of how your loan will change over ​‍​‌‍​‍‌​‍​‌‍​‍‌time.

How to Calculate a Loan Payment

Determining​‍​‌‍​‍‌​‍​‌‍​‍‌ your monthly loan payment is the basic step in grasping how your loan is set up. The method employed is the amortization formula, and what it does is keep your payment at the same level throughout the duration of the loan while at the same time dividing the money between the principal and the interest in a correct way. Let's see how it is working in ​‍​‌‍​‍‌​‍​‌‍​‍‌reality.

The​‍​‌‍​‍‌​‍​‌‍​‍‌ formula needs three essential pieces of information: the amount of money you are borrowing (loan principal), your annual interest rate (as a decimal), and the total number of payments (loan term in years multiplied by 12 for monthly payments). The calculation is based on compound interest principles to figure out a fixed payment amount that will cover both principal and interest over the loan term. The formula reflects the situation that when you reduce the principal, the interest that is charged becomes less, hence more of each payment can be used to decrease the ​‍​‌‍​‍‌​‍​‌‍​‍‌balance.

The​‍​‌‍​‍‌​‍​‌‍​‍‌ formula basically figures out what monthly payment is required so that if you use that payment every month for the whole loan period, you will have paid not only the loan amount but also all the interest that has been added. One very elegant thing about this method is that it generates a system which adjusts itself: when your debt is big, most of your payment is for the interest; when the debt gets smaller, more is for the principal, however, the total payment amount remains ​‍​‌‍​‍‌​‍​‌‍​‍‌unchanged.

Our​‍​‌‍​‍‌​‍​‌‍​‍‌ calculator takes care of all these calculations by itself, but knowing the process gives you an insight of why different loan terms lead to different payment amounts. To illustrate, a longer loan term implies lower monthly payments and a higher total interest paid, whereas a shorter term indicates higher monthly payments and less interest in total. The payment calculation is what first enables the whole amortization schedule to be ​‍​‌‍​‍‌​‍​‌‍​‍‌created. For a comprehensive tool that helps you calculate loan payments with additional features like extra payments and affordability analysis, check out our loan calculator. If you're interested in understanding how interest compounds over time, our APY calculator can help you see the true return on investments and savings accounts.

How to Calculate Interest

Interest​‍​‌‍​‍‌​‍​‌‍​‍‌ calculation is essentially power unit or engine that turns amortization. Knowing how this engine works gives you a clearer idea why your payments have this kind of structure. Interest is one of the main parts in loans that shows the cost of borrowed money and in the case of an amortized loan it is figured out from the outstanding balance each month. That is the reason why the part of the payment which is to cover the interest has a different value from month to ​‍​‌‍​‍‌​‍​‌‍​‍‌month.

The​‍​‌‍​‍‌​‍​‌‍​‍‌ computation is quite simple: you take the loan balance that you have at the moment and multiply it by the interest rate for that month, for each period of payment. The monthly rate is just your yearly interest rate divided by 12. To illustrate, with a 6% annual interest rate, your monthly rate will be 0.5% (6% ÷ 12 = 0.005). So, in case your balance is $200,000, the interest for that particular month will be $200,000 × 0.005 = ​‍​‌‍​‍‌​‍​‌‍​‍‌$1,000.

Amortization​‍​‌‍​‍‌​‍​‌‍​‍‌ is actually quite interesting in that this interest calculation is always done new each month on your current balance. In the very first payment, you are charged interest on the total loan amount. However, after that initial payment, your balance goes down, so the interest for the following month is determined on the lesser amount. This, thereby, results in a kind of domino effect where the part of your payments that go towards interest are slowly getting lower and the part that goes towards the principal is getting higher, although your total monthly payment remains ​‍​‌‍​‍‌​‍​‌‍​‍‌unchanged.

That​‍​‌‍​‍‌​‍​‌‍​‍‌ is the reason if you make additional instalments ahead of time in your loan it can save a lot of money basically, you are cutting down the amount on which the interest for the following periods will be calculated. The method of interest calculation is also the reason why loans with longer terms are more expensive in total interest: you are paying interest on higher amounts for a longer time. Knowing this calculation helps you grasp the real cost of borrowing and gives you the opportunity to decide wisely about the length of the loan and late payment ​‍​‌‍​‍‌​‍​‌‍​‍‌tactics.

When is Amortization Used

Amortization​‍​‌‍​‍‌​‍​‌‍​‍‌ is essentially what happens in most installment loans when you have to make regular fixed payments over a certain period. For the most part, it's pretty much used in cases where borrowers require a payment schedule that is predictable while at the same time lenders are certain that the loan will be paid off by the end of the term. Knowing how amortization works in a loan can tell you what kind of loan structure you ​‍​‌‍​‍‌​‍​‌‍​‍‌have.

The​‍​‌‍​‍‌​‍​‌‍​‍‌ best known example is in housing loans where amortization schedules are usually 15, 20, or 30 years long. People purchasing homes use these schedules to figure out how their ownership will increase gradually and how much interest they will be required to pay throughout the term of their mortgage. Similarly, car loans are amortized, generally over 3 to 7 years, thus enabling automobile purchasers to determine how fast the vehicle will be theirs without any further ​‍​‌‍​‍‌​‍​‌‍​‍‌payments.

Personal​‍​‌‍​‍‌​‍​‌‍​‍‌ loans that you get from a bank, a credit union, or an online lender will almost definitely be amortized, which means that the borrower will be given a very clear payment schedule. As a rule, student loans (either federal or private) are amortized; however, some of them may have different repayment plans. Business loans to buy equipment, to expand the business, or to get working capital also come with amortization schedules, thus enabling business owners to have a steady payment plan which in turn facilitates cash flow ​‍​‌‍​‍‌​‍​‌‍​‍‌management.

Amortization​‍​‌‍​‍‌​‍​‌‍​‍‌ is a great tool especially when you require a long-term budget, are willing to keep track of your progress towards debt freedom, or need to know the tax implications of interest payments. The amortization method is not generally applied to credit cards (which use revolving credit) or interest-only loans (where you pay only interest for a period). If you have a loan on which you make fixed monthly payments and that has a set end date, then you are almost certainly dealing with an amortized loan. In that case, understanding the schedule can assist you to maximize your payment ​‍​‌‍​‍‌​‍​‌‍​‍‌strategy.