Use this calculator to determine your loan payments and generate an amortization schedule. Enter the loan details to see how your payments break down over time.
Loan amortization is the process of paying off a debt over time through regular payments. Understanding how to calculate loan amortization is crucial for borrowers to comprehend their loan terms, plan their finances, and make informed decisions about borrowing.
The formula for calculating the payment amount in an amortized loan is:
$$P = L\frac{r(1+r)^n}{(1+r)^n-1}$$
Where:
Let's calculate the amortization for a loan with the following terms:
Step 1: Calculate the monthly interest rate
$$r = \frac{4.5\%}{12} = 0.375\% \text{ or } 0.00375$$
Step 2: Calculate the total number of payments
$$n = 30 \text{ years} \times 12 \text{ months} = 360 \text{ payments}$$
Step 3: Apply the amortization formula
$$P = 200,000 \times \frac{0.00375(1+0.00375)^{360}}{(1+0.00375)^{360}-1} = 1,013.37$$
Therefore, the monthly payment for this loan is $1,013.37.
This chart illustrates the loan amortization process. The blue line shows how the loan balance decreases over time. The green and red areas represent the breakdown of each payment into principal and interest components respectively. Initially, a larger portion of the payment goes towards interest, but as the loan progresses, more of each payment is applied to the principal.
| Payment # | Payment Amount | Principal | Interest | Remaining Balance |
|---|