Loan Amortization Calculator
Understanding loan amortization
An amortization schedule breaks down every payment of your loan into two parts: principal (the amount that actually reduces your debt) and interest (the cost of borrowing). The schedule shows you exactly how much of your money is going to the lender vs. toward your actual debt, month by month.
Why early payments are mostly interest
Interest is calculated on the remaining balance. In month 1, your balance is at its highest, so the interest charge is at its highest. Each payment shaves a little off principal, which reduces next month's interest — but only slightly at first. This is why a 5-year loan still has ~80% of each payment going to interest in year 1 at 8.5%.
The strategic insight
Because interest is front-loaded, extra payments made early in the loan are worth far more than the same payments made late. An extra $500 in month 3 of a 5-year loan might save you $900 in interest. The same $500 in month 55 might only save $515. If you're going to prepay, do it as early as possible.
What "principal vs interest" means for you
- Interest is pure cost — money you pay to the lender for the use of their money
- Principal is equity — money you're paying toward owning the asset outright
- On a mortgage, only principal builds your equity; interest is lost forever