1. What is Amortization?

Amortization is the process of spreading out a loan into fixed payments over time. Each payment covers 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 amortization formula:

Where:

• \( Principal \) — Original loan amount
• \( Rate \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in years × 12)

Explanation: The formula calculates the fixed monthly payment required to fully pay off a loan over its term, accounting for compound interest.

3. Understanding Loan Payments

Details: Early payments are mostly interest, while later payments apply more to principal. This calculator shows the fixed payment amount and total interest paid over the life of the loan.

4. Using the Calculator

Tips: Enter the loan amount in dollars, annual interest rate as a percentage (e.g., 3.5 for 3.5%), and loan term in years. The calculator converts these to monthly values for the amortization calculation.

5. Frequently Asked Questions (FAQ)

Q1: How does extra principal payment affect amortization?
A: Extra payments reduce total interest paid and can shorten the loan term significantly.

Q2: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while interest rate is just the cost of borrowing principal.

Q3: How does loan term affect total interest?
A: Shorter terms mean higher monthly payments but less total interest. Longer terms reduce monthly payments but increase total interest.

Q4: Are there loans that don't amortize?
A: Yes, interest-only loans and balloon loans have different payment structures.

Q5: How accurate is this calculator?
A: It provides standard amortization calculations. Actual loan terms may include additional fees or special conditions.