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Loan Amortization Calculator — Free Online ToolThe monthly payment formula
For a fully amortizing loan at a fixed interest rate, the monthly payment M is:
M = P × [r(1+r)^n] / [(1+r)^n − 1]
Where:
- P = principal (loan amount)
- r = monthly interest rate = annual rate ÷ 12 ÷ 100
- n = total number of monthly payments = years × 12
If the interest rate is 0%, the formula simplifies to M = P / n (equal principal payments with no interest).
Worked example
A $15,000 auto loan at 6% annual interest over 4 years:
- r = 6 ÷ 12 ÷ 100 = 0.005
- n = 4 × 12 = 48
- M = 15,000 × [0.005 × (1.005)^48] / [(1.005)^48 − 1]
- (1.005)^48 ≈ 1.27049
- M = 15,000 × [0.005 × 1.27049] / [1.27049 − 1] = 15,000 × 0.006352 / 0.27049 ≈ $352.03
Total paid over 48 months: $352.03 × 48 = $16,897.44. Total interest: $16,897.44 − $15,000 = $1,897.44.
How to read an amortization schedule
An amortization schedule is a table with one row per payment period. Each row shows:
| Column | What it means |
|---|---|
| Payment # | The payment period (month 1, month 2, etc.) |
| Payment | Fixed monthly amount (same every row) |
| Principal | Portion that reduces the outstanding balance |
| Interest | Cost of borrowing for that period (balance × monthly rate) |
| Balance | Remaining amount owed after this payment |
In early months, most of the payment is interest. In later months, most goes to principal. By the final payment the interest component is tiny and nearly all of the payment goes directly to principal.
Example: first three rows of a $10,000 loan at 8% / 3 years
| Month | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| 1 | $313.36 | $246.69 | $66.67 | $9,753.31 |
| 2 | $313.36 | $248.33 | $65.02 | $9,504.97 |
| 3 | $313.36 | $249.99 | $63.37 | $9,254.98 |
Notice how interest drops by about $1.65 each month as the balance falls. Over 36 months, total interest paid is approximately $1,281.
The impact of extra payments
Extra payments go entirely to principal — reducing the balance faster. This has a compounding effect: a lower balance means less interest accrues each month, which means subsequent payments retire even more principal. Even modest extra payments can meaningfully reduce the total interest paid and shorten the loan term.
| Scenario | Monthly payment | Total interest | Payoff time |
|---|---|---|---|
| $10,000 at 8% / 3 years, no extra | $313.36 | $1,281 | 36 months |
| Same loan + $50 extra/month | $363.36 | ~$1,085 | ~30 months |
| Same loan + $100 extra/month | $413.36 | ~$912 | ~26 months |
Extra payments are most effective early in the loan term when the balance is highest. The same $100 extra saves far more in month 1 than in month 35.
Loan types that use amortization
The standard amortization formula applies to most consumer loans with a fixed interest rate and equal periodic payments:
- Personal loans: typical terms of 1–7 years
- Auto loans: typically 3–7 years
- Student loans: often 10 years, with income-driven repayment options as variations
- Mortgages: typically 15 or 30 years — use the Mortgage Calculator for those
Revolving credit (credit cards, lines of credit) uses a different mechanism — minimum payments are recalculated each month based on the current balance, so there is no fixed amortization schedule.
Frequently asked questions
What is a loan amortization schedule?
A loan amortization schedule is a complete table of every monthly payment for the life of your loan. Each row shows the payment amount, how much of that payment reduces the principal, how much covers interest, and the remaining balance after the payment. It gives you full visibility into exactly what you are paying and when the loan will be fully repaid.
How do I calculate my monthly loan payment?
Use the formula 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). For quick results without manual calculation, use our free Loan Amortization Calculator above.
Does making extra payments change my monthly payment?
No — your contractual monthly payment stays the same, but extra payments reduce the principal faster. This means the loan is paid off sooner than the original schedule and the total interest you pay is lower. The amortization schedule will reflect fewer total rows than the original term.
How much interest do I pay on a $10,000 loan at 8% over 3 years?
A $10,000 loan at 8% annual interest over 3 years results in approximately $313.36 per month. Total interest paid over the life of the loan is approximately $1,281. Use the calculator above for your exact figures with any loan amount, rate and term.
Conclusion
Loan amortization follows a simple but powerful formula: each payment covers that month's interest on the remaining balance, with the rest retiring principal. Over time, the interest share falls and the principal share rises. Knowing this lets you accurately budget, compare loan offers, and evaluate whether extra payments are worth making. Use our free Loan Amortization Calculator to generate a full payment schedule for any loan — no sign-up required.
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