Reading an amortisation schedule
Amortisation is the process by which a fixed instalment gradually shifts from paying interest to repaying principal. This calculator produces the schedule that shows it happening.
The instalment is constant. What changes every month is the split, and that split is the reason early repayment behaves so differently at the start of a loan than at the end.
The formula behind the number
An amortising loan is repaid in equal instalments. Each one covers the interest that accrued since the last payment, and whatever is left reduces the balance. The instalment that brings the balance to exactly zero on the final payment is:
Here P is the amount borrowed, i is the monthly rate (the annual rate divided by 12) and n is the number of payments. Nothing else enters the calculation, which is why two lenders quoting the same three inputs must arrive at the same instalment.
Worked example: $20,000 at 7% over 5 years
The calculator opens on this scenario, so you can follow every step:
- Amount borrowed: $20,000
- Annual rate: 7%, so the monthly rate is 7 ÷ 12 = 0.5833%
- Term: 5 years, so n = 5 × 12 = 60 payments
Paying $396.02 every month for 60 months comes to $23,761. Subtract the $20,000 you actually borrowed and the cost of the credit is $3,761.44, or 19% of the sum borrowed.
Where each payment goes
The instalment never changes, but its composition does. The first payment carries $116.67 of interest and only $279.36 of principal. By payment 30 the split has moved to $65.34 interest against $330.69 principal.
| Payment | Instalment | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | $396.02 | $116.67 | $279.36 | $19,721 |
| 2 | $396.02 | $115.04 | $280.99 | $19,440 |
| 3 | $396.02 | $113.40 | $282.63 | $19,157 |
| 30 | $396.02 | $65.34 | $330.69 | $10,870 |
| 60 | $396.02 | $2.30 | $393.73 | $0.00 |
The crossover point — where principal first exceeds interest within a single payment — arrives earlier on short loans and much later on long ones.
What moves the answer most
Two levers change the total, and they do not pull with equal force.
Add one percentage point to the rate and the instalment goes from $396.02 to $405.53, which is $570.23 more over the full term. Cut 1 year off the term instead and the instalment rises to $478.92, but total interest falls from $3,761.44 to $2,988.39. Extra payments applied to principal skip the interest that balance would have generated for the rest of the term, which is why they are worth far more than their face value.
What this calculator leaves out
The schedule assumes a fixed rate and no missed or irregular payments. Variable-rate loans rebuild the schedule at every rate change.
Related calculators
- Mortgage amortisation — the same schedule over thirty years
- Loan balance calculator — what is left after a given number of years
- Extra payments calculator — how overpaying reshapes the schedule