Loan Cost Amortization Calculator

Amortization Formula:

\[ Payment = \frac{P \times r \times (1+r)^n}{(1+r)^n - 1} \]

Monthly Payment:

Total Payment:

Total Interest:

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1. What is Loan Amortization?

Loan amortization is the process of paying off a debt over time through regular payments. Each payment covers both interest and principal, 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:

\[ Payment = \frac{P \times r \times (1+r)^n}{(1+r)^n - 1} \]

Where:

$ P $ — 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 Amortization Calculation

Details: Understanding your amortization schedule helps you see the true cost of borrowing, plan your finances, and make informed decisions about prepayments or refinancing.

4. Using the Calculator

Tips: Enter the loan amount in dollars, annual interest rate as a percentage (e.g., 5.25), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of my early payment go toward interest?
A: In amortizing loans, interest is calculated on the outstanding balance, which is highest at the beginning. As you pay down principal, the interest portion decreases.

Q2: How can I pay less interest overall?
A: Making additional principal payments reduces the outstanding balance faster, thereby reducing total interest paid over the life of the loan.

Q3: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing principal, while APR (Annual Percentage Rate) includes interest plus other loan fees, representing the true cost of borrowing.

Q4: How does loan term affect my payment?
A: Longer terms mean lower monthly payments but more interest paid overall. Shorter terms have higher payments but less total interest.

Q5: Can I see a full amortization schedule?
A: This calculator shows summary results. For a detailed month-by-month breakdown, consider using an amortization schedule calculator.