1. What is the Loan Amortization Calculator?

The Loan Amortization Calculator helps you determine your monthly loan payments and shows how each payment is split between principal and interest over the life of the loan. It's essential for understanding the true cost of borrowing.

2. How Does the Calculator Work?

The calculator uses the standard loan amortization formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (decimal)
• \( n \) — Number of monthly payments

Explanation: The formula calculates the fixed monthly payment required to fully repay a loan over its term, accounting for both principal and interest.

3. Importance of Loan Amortization

Details: Understanding amortization helps borrowers see how much they're paying in interest versus principal, plan for early payoff, and compare different loan options effectively.

4. Using the Calculator

Tips: Enter the loan amount in USD, monthly interest rate as a decimal (e.g., 0.01 for 1%), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert APR to monthly rate?
A: Divide the annual percentage rate (APR) by 12 (for months) and by 100 to convert to decimal. Example: 6% APR = 0.06/12 = 0.005 monthly.

Q2: Why does early payment save so much interest?
A: Early payments go mostly toward interest. Extra principal payments reduce the balance faster, reducing future interest calculations.

Q3: What's the difference between term and amortization period?
A: They're usually the same, except for loans with interest-only periods where amortization begins later.

Q4: Can I use this for mortgage loans?
A: Yes, this calculator works for any fixed-rate amortizing loan including mortgages, car loans, and personal loans.

Q5: How accurate are these calculations?
A: They're mathematically precise for fixed-rate loans. Variable-rate loans would require more complex calculations.