Loan Amortization Calculator
Enter your loan amount, interest rate, and term to see your monthly payment and a year-by-year amortization schedule.
What Is Loan Amortization?
Amortization is the systematic repayment of a loan through scheduled, equal payments over a fixed period. With a fully amortizing loan, every payment covers both interest and principal, and the loan balance reaches exactly zero on the last payment date.
Most consumer loans — personal loans, auto loans, mortgages, and student loans — are amortizing loans. Understanding how amortization works helps you see the true cost of borrowing and make smarter financial decisions.
The Amortization Formula
The monthly payment for a fixed-rate loan is calculated as:
Where:
- M = monthly payment
- P = loan principal (amount borrowed)
- r = monthly interest rate (annual rate ÷ 12 ÷ 100)
- n = total number of monthly payments
How Amortization Schedules Work
In the early months of a loan, the vast majority of each payment goes toward interest. As the balance decreases, the interest portion shrinks and the principal portion grows — even though the payment amount stays the same.
For example, on a $20,000 loan at 7% for 5 years, the first month's payment of $396 includes roughly $117 in interest and $279 toward principal. By the last payment, nearly the entire amount goes to principal.
| Loan Term | Monthly Payment* | Total Interest* |
|---|---|---|
| 3 years (36 mo) | $617 | $2,211 |
| 5 years (60 mo) | $396 | $3,761 |
| 7 years (84 mo) | $299 | $5,143 |
| 10 years (120 mo) | $232 | $7,841 |
*Based on a $20,000 loan at 7% annual interest.
Frequently Asked Questions
What is loan amortization?
Loan amortization is the process of paying off a debt over time through regular payments. Each payment covers accrued interest first, with the remainder reducing the principal balance. Over the life of a fixed-rate loan, the interest portion of each payment decreases while the principal portion increases.
How is the monthly payment calculated?
The standard formula is: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the loan principal, r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the total number of payments (years × 12).
Why do I pay mostly interest at the start of a loan?
Because interest is calculated on your remaining balance, the interest charge is highest when the balance is highest — at the beginning of the loan. As you pay down principal, less interest accrues each month, so more of each fixed payment chips away at the balance.
What happens if I make extra principal payments?
Extra principal payments reduce your outstanding balance faster, which means less interest accrues in subsequent months. Even small additional payments each month can shorten your loan term significantly and save thousands in interest.
What is the difference between loan term in years vs. months?
They are the same concept expressed differently. A 5-year loan = 60 months. A 30-year mortgage = 360 monthly payments. Longer terms mean lower monthly payments but more total interest paid.