Amortization Calculator

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Most loans encountered in personal finance, such as mortgages, auto loans, personal loans, and student loans, are typically amortized and have a monthly repayment schedule. This amortization calculator computes the monthly repayment amount, as well as the interest and amortization schedule of an amortized loan. It can also compare two different amortized loans side by side. To use this calculator, please enter the loan amount, loan term, and interest rate. Then, toggle the features on or off, and click the 'Calculate' button.

Amortization is a financial concept used to gradually reduce the cost of an asset or the balance of a loan over a fixed period. While assets, costs, big purchases, and various other things can all be amortized, in personal finance, the terms 'amortization' and 'loan amortization' are often used when discussing loans, mortgages, auto loans, or any other type of borrowing.

How loan amortization works?

Amortization is the process of spreading out a loan into a series of payments, typically fixed monthly payments, over time. When taking out an amortized loan, the lender calculates the periodical payments based on the loan amount, the interest rate, and the loan term. Each payment goes towards both reducing the principal balance and covering the interest charged for that period. This gradual repayment approach allows borrowers to pay off debts in manageable installments rather than in one lump sum.

The repayment process is governed by an amortization schedule, a table that outlines how each payment is divided between principal and interest throughout the loan term. It typically includes details such as the payment number, payment amount, principal paid, interest paid, and the remaining balance. In the early stages of a loan, a larger portion of the payment is allocated to interest because the interest is calculated on the initially higher remaining balance. As the principal is paid down, the interest amount decreases, allowing more of the payment to go towards the principal. Over time, this balance shifts increasingly towards principal reduction. By referring to the amortization schedule, borrowers can track their progress in paying off the loan and understand how each payment contributes to reducing their debt.

Types of amortized loans

Most of the loans encountered in personal finance are amortized loans. Here are some common examples:

Mortgages: The most common type of amortized loan, where regular payments are made over 15 to 30 years. Borrowers can choose between fixed-rate and adjustable-rate mortgages, which affect how the interest is calculated and the payment schedule.

Auto loans: These are typically amortized over 2 to 7 years, with the vehicle serving as collateral for the loan.

Personal loans: Often used for consolidating debt, making home improvements, or funding major purchases, these loans are also amortized with fixed payments over the agreed term.

In addition to these, many other types of loans are also typically amortized, including student loans, home equity loans, debt consolidation loans, medical loans, and more.

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