Published 2025-12-09 · Last updated 2026-03-04 · Reviewed by Valzura Editorial Team
Loan Amortization Calculator
Break any fixed-rate loan into its payment, interest cost, and payoff schedule.
Loan amortization is the process of paying off a loan through fixed periodic payments, where each payment covers the interest due and a growing share of the principal. Early payments are mostly interest; later payments are mostly principal. The monthly payment is calculated as M = P times r divided by (1 minus (1 plus r) to the power of negative n), where P is the loan amount, r is the monthly interest rate, and n is the total number of payments. An amortization schedule shows how the balance falls to zero over the term.
The principal you are borrowing.
The annual interest rate on the loan.
The number of years to fully repay the loan.
Monthly payment
$3,166.89
Total interest
$130,027
Over 120 payments.
Total repaid
$380,027
Amortization by year
| Year | Principal | Interest | Balance |
|---|---|---|---|
| 1 | $16,158 | $21,844 | $233,842 |
| 2 | $17,674 | $20,328 | $216,167 |
| 3 | $19,332 | $18,671 | $196,835 |
| 4 | $21,146 | $16,857 | $175,689 |
| 5 | $23,129 | $14,873 | $152,560 |
| 6 | $25,299 | $12,704 | $127,261 |
| 7 | $27,672 | $10,330 | $99,589 |
| 8 | $30,268 | $7,735 | $69,321 |
| 9 | $33,107 | $4,895 | $36,213 |
| 10 | $36,213 | $1,790 | $0 |
How the amortization formula works
r = annual rate / 12 · n = years × 12
Every payment on an amortizing loan is the same dollar amount, but its split between interest and principal shifts over time. Interest is charged on the outstanding balance, which is largest at the start, so early payments are mostly interest. As the balance falls, more of each payment attacks the principal, and the loan reaches zero on the final payment. The schedule above shows that shift year by year.
Why extra early payments save the most
Because interest accrues on the remaining balance, a dollar of extra principal paid in year one avoids interest on that dollar for the entire remaining term. The same dollar paid near the end saves almost nothing. If you expect to prepay, front-loading those payments produces the largest reduction in total interest, which the total-interest figure above lets you test at different terms and rates.
Amortization in a business purchase
When debt funds a business acquisition, the amortization schedule sets the annual debt service the business must cover from its earnings. Lenders compare that figure against cash flow using a debt service coverage ratio, and they want the purchase price supported by the business's value. Before you borrow, it pays to know what the business is worth using the frameworks in our business valuation guide or a quick estimate from the free valuation calculator.
Frequently Asked Questions
How is loan amortization calculated?
The fixed monthly payment is found with the formula M = P times r divided by (1 minus (1 plus r) raised to the negative n), where P is the principal, r is the monthly interest rate (annual rate divided by 12), and n is the number of monthly payments. Each month, interest is charged on the remaining balance and the rest of the payment reduces the principal.
Why is most of my early payment going to interest?
Interest is charged on the outstanding balance, which is highest at the start of the loan. As the balance falls, the interest portion of each fixed payment shrinks and the principal portion grows. This is why paying extra early in the term saves the most interest over the life of the loan.
What is the difference between the loan term and the amortization period?
For most fully amortizing loans they are the same: the loan is paid to zero over the term. Some commercial loans amortize over a longer period than the term, leaving a balloon payment due at the end. This calculator assumes a fully amortizing loan with no balloon.
Does a shorter term save money?
A shorter term raises the monthly payment but sharply reduces total interest, because you borrow the money for less time. A longer term lowers the monthly payment but increases the total interest paid. The schedule above lets you compare the total interest at different terms.
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