Loan Amortization Calculator
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Consulting a loan amortization calculator always helps in knowing the amount of principal and interest left to be paid back on your debt. Amortization is a process through which a large amount of cash flow is channeled into smaller installments and each installment pays towards the principal, as well as the interest. Amortization is used in loan payments and as per this process, the biggest part of the monthly installment is applied to the interest at the start and to the principal amount in the end.[br]
Formula behind Loan Amortization Calculator
The formula for loan amortization calculator is: A=p*r(1+r)n/ {(1+r)n-1}. In this formula, ‘A’ stands for the monthly payment, ‘p’ is the initial principal (loan amount), ‘r’ is the interest rate per period and ‘n’ is the total number of payments or periods
Let clarify the usage by an example. Suppose if you borrow $10,000 at an interest rate of 7.5%, which becomes .0065% per month and the duration is 5 years (60 months) then as per the formula 1000*.0065 (1+.0065)60 / {(1+.0065)60 -1} the monthly payment becomes $200.38.
This formula is also inbuilt in Microsoft Excel so if you can’t find an online loan amortization calculator, simply launch Excel and follow these steps:
· Select a cell
· Copy paste the formula — =PMT (rate,n,p). Replace ‘r’, ‘n’ and ‘p’ with the figures and press the Enter key.
· Excel will calculate and display the monthly payment.[br]
If you want to create your own amortization chart and know the portion of the payment that goes towards the principal amount, you need to multiply the interest rate with the previous balance. As balance is higher at the start, the interest portion remains higher and gradually decreases towards the end of the loan duration. Making your own amortization chart also helps in cross checking the figures stated by the lenders.
Loan amortization calculator is a great tool to not only calculate the monthly payment but also compute the other factors such as the term, interest rate and the duration of the loan. Many websites also offer loan amortization calculators that consider a borrower’s credit history, the sales tax and even the down payment.
