Loan Amortization Definition and Schedule
Loan amortization: an amortized loan has scheduled payments consisting of principal and interest. Amortization is often used for car loans, mortgages, and personal loans from banks for, say, a small project or consolidating debt.
Loan amortization schedule and formula
- Take the loan’s current balance and multiply by the interest rate for the current period to find the actual dollar amount of interest you’ll pay for that period (divide yearly interest rates by 12 to see your monthly rate).
- Subtract the month’s dollar amount of interest from the month’s payment to see how much principal you’ll be paying off in that current month.
- Take that principal amount, subtract it from the loan’s outstanding balance to find the new balance. This new balance is what is used to calculate the interest for the next period or month.
An amortization chart will list balances and dollar amounts for each period. Showing offers from prospective lenders, based on the loan amount, zip code, your credit score, and a few other details you provide. Various competing offers will generate giving you an idea of what to expect as far as monthly payments and interest rates.
This occurs when the person making payments on the loan fails to cover the interest due. The amount of interest not covered is then added to the loan’s principal.
To learn more about this topic, or if you’re in need of a loan, feel free to contact us or fill out our quick form to see if you’re qualified!
Note: we are not a mortgage lender, but do offer many other types of private loans, especially for small businesses. Visit our website to see what we have.