Amortization Calculator

Q: How do extra payments save so much money?

Any amount you pay above your calculated payment is typically applied 100% to the principal. This reduces the balance that future interest is calculated on and shortens the total number of payments, meaning the lender has fewer opportunities to charge you interest.

Generate a detailed loan amortization schedule.

1. Loan Amount

Enter the total amount of money you are borrowing.

2. Loan Term

Enter the length of the loan.

Years Months

3. Interest Rate

Enter your annual interest rate.

4. Payment Frequency

How often will you pay?

Add Extra Payments (Optional)

Understanding Your Loan: A Guide to Amortization

Amortization is the process of paying off a loan over time with regular, fixed payments. Each payment you make is split into two parts: the principal (the actual amount you borrowed) and the interest (the cost of borrowing). Our amortization calculator shows you exactly how this split works for every single payment throughout the life of your loan.

At the start of your loan, a larger portion of your payment covers interest. As time goes on and your loan balance shrinks, more of your payment goes toward paying down the principal. This shift is the key to becoming debt-free. Visualizing this process helps you see the long-term financial impact of your loan and discover powerful ways to save money.

How to Use the Amortization Calculator

Get a complete picture of your loan in five simple steps:

Step 1: Enter Loan Amount: Start with the total amount you are borrowing. This is your principal loan balance.
Step 2: Specify Loan Term: Input the total time you have to repay the loan, in either years or months (or a combination). Common terms are 30 years for mortgages or 5 years for auto loans.
Step 3: Add Interest Rate: Enter the annual interest rate (APR) for your loan. This determines the cost of borrowing.
Step 4: Select Payment Frequency: Choose how often you plan to make payments. While monthly is most common, bi-weekly payments can sometimes help you pay off your loan faster.
Step 5: (Optional) Model Extra Payments: Activate the "Add Extra Payments" toggle to see how much you can save. Even a small extra amount applied directly to your principal can shave years off your loan term and save you thousands in interest.

Once you click "Generate Schedule," you'll see your regular payment amount, total interest cost, payoff date, a visual chart, and a detailed payment-by-payment schedule.

The Amortization Formula Explained

While our calculator does the heavy lifting, understanding the formula can provide deeper insight. The formula to calculate the fixed periodic payment (M) is:

$$ M = P \frac{r(1+r)^n}{(1+r)^n - 1} $$

Where:

P = Principal loan amount
r = Periodic interest rate (your annual rate divided by the number of payments per year)
n = Total number of payments

This formula ensures that each payment is perfectly balanced to cover the accrued interest and reduce the principal, bringing the loan balance to exactly zero with the final payment.

Frequently Asked Questions (FAQ)

Why is so much interest paid at the beginning of a loan?

Interest is calculated based on your outstanding loan balance. When you first take out the loan, your balance is at its highest, so the amount of interest you owe is also at its peak. Your fixed payment is designed to always cover that interest first. As you pay down the balance, the interest portion of each payment naturally decreases, allowing more of your money to go toward the principal.

How do extra payments save so much money?

Standard loan payments are calculated to pay off the loan in a specific timeframe. Any amount you pay above that calculated payment is typically applied 100% to the principal. This has a powerful twofold effect: it reduces the balance that future interest is calculated on, and it shortens the total number of payments, meaning the lender has fewer opportunities to charge you interest.

What is the difference between APR and interest rate?

The interest rate refers only to the percentage cost of borrowing the money. The Annual Percentage Rate (APR) is a more comprehensive figure that includes the interest rate plus other lender fees, such as origination fees or closing costs. The APR gives you a truer picture of the total cost of your loan. For this calculator, you should use the APR for the most accurate results.

Does this amortization calculator work for mortgages, auto loans, and personal loans?

Yes. The calculation for an amortized loan is the same regardless of the loan's purpose. You can use this tool to generate a schedule for virtually any type of fixed-rate installment loan, including mortgages, auto loans, personal loans, and student loans.