Track how each payment reduces debt and how interest burden changes throughout a loan.
Overview
Amortization schedules reveal what one payment summary cannot.
Early installments are usually interest-heavy, while later ones build principal faster.
This view is essential when planning prepayments and refinancing decisions.
It also helps validate lender disclosures and repayment expectations.
Steps
Input starting balance of the loan.
Use contract rate and total repayment length.
Monthly is standard for most consumer loans.
Review principal and interest split by period.
Model prepayment impact on balance and interest.
Math
Interest_t = Balance_(t-1) × r; Principal_t = Payment - Interest_t
Each period calculates interest on current balance, then applies remaining payment toward principal.
Worked cases
Month 1 interest = 200,000 × 0.06/12 = $1,000; principal = payment - 1,000.
Early months allocate more to interest than principal.
Recompute interest on lower balance.
Interest share drops as outstanding balance declines.
Apply extra directly to principal each period.
Loan pays off sooner and total interest falls.
Why use this
Questions