Loan Amortization Calculator

How the payment formula works

For a fixed-rate loan, the monthly payment is:

P = L × r ÷ (1 − (1 + r)^−n)

Where L is the amount borrowed, r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the number of monthly payments. This is the standard annuity formula. It produces a level payment in which the interest share falls and the principal share rises over time.

At the start of a 5-year, $25,000 loan at 7.5%, roughly $156 of the first payment goes to interest and only about $345 reduces the balance. By the final year that ratio is reversed. This is why paying extra early is worth far more than paying extra late.

Why extra payments punch above their weight

Every extra dollar paid today removes all future interest that dollar would have generated. On a 7.5% loan with 20 years remaining, $100 extra per month can shorten the term by several years and save more interest than the same $100 applied in the last two years.

The calculator handles this correctly: it applies the extra amount to principal after the scheduled payment, then recomputes interest on the smaller balance in the following month. It also caps the final payment so you never overpay.

Reading the schedule

The yearly table aggregates twelve monthly payments into one row. It shows how much of that year's payments went to principal, how much to interest, and the balance at year end. Three patterns are worth noticing:

1. Interest is front-loaded. In year one of a long loan, interest can be the majority of what you pay.
2. Equity builds slowly at first. The balance falls slowly early and rapidly later, unless extra payments accelerate it.
3. The final year is almost all principal. Once the balance is small, interest charges shrink accordingly.

Assumptions and limits

• Fixed rate. Variable-rate loans need a scenario for each rate environment.
• No fees. Origination fees, closing costs, and insurance are not included. Add them to the principal if you want to see their effect.
• Monthly compounding. Most consumer loans and mortgages use monthly accrual; some use daily simple interest, which changes the result slightly.
• No taxes or escrow. Property tax and insurance escrow are separate from principal and interest.

Common uses

Auto loans. Compare a 60-month and 72-month term. The longer term lowers the payment but usually raises the rate and always raises total interest.

Personal loans. Check whether a consolidation loan actually saves money: compare the new payment and total interest against the weighted cost of the debts it replaces.

Mortgages. This calculator covers principal and interest. For a full housing payment, add property tax, insurance, HOA dues, and mortgage insurance.

Student loans. Use the standard repayment term as a baseline, then compare an income-driven estimate.

How to use the result

1. Confirm the payment against your loan disclosure — a difference usually means a fee was financed or the rate is different.
2. Decide what extra amount you can commit every month, not just once.
3. Ask your servicer to apply extra payments to principal and confirm there is no prepayment penalty.
4. Recalculate after any rate change or refinance.

A note on biweekly payments

Biweekly payment plans produce roughly one extra monthly payment per year. You can model the same effect here by dividing one payment by twelve and entering that as the extra monthly amount — a simpler approach that avoids the servicing complications some lenders impose.