1. What is amortization?
Amortization is the process of paying off a loan through scheduled payments over time. Each payment includes principal and interest. Early payments are mostly interest; later payments are mostly principal.
2. How is amortization calculated?
Amortization is calculated using the loan amount, interest rate, and term. Each period, interest is calculated on the remaining balance, and the rest of the payment reduces principal.
3. What is an amortization schedule?
An amortization schedule is a table showing every payment over the loan term, including the amount paid to principal, the amount paid to interest, and the remaining balance.
4. Why do I pay more interest early in the loan?
Interest is calculated on your remaining balance. Early in the loan, your balance is highest, so interest is highest. As you pay down principal, interest decreases.
5. What is the difference between amortization and depreciation?
Amortization applies to intangible assets and loan repayment. Depreciation applies to physical assets. Both allocate costs over time but for different asset types.
6. How does loan term affect amortization?
Longer terms have lower monthly payments but more total interest. Shorter terms have higher monthly payments but less total interest. This calculator lets you compare different terms.
7. What is a fully amortized loan?
A fully amortized loan is paid off completely by the end of the term through regular payments. At the final payment, the balance reaches zero.
8. What happens if I make extra payments?
Extra payments reduce principal faster, which lowers total interest and shortens the loan term. This calculator shows the impact of extra monthly and one-time payments.
