Understanding Your Loan

Taking out a loan or a mortgage is a major financial commitment. Understanding exactly how your payments work is crucial for managing your debt effectively. This calculator breaks down every aspect of your loan, from the monthly payment to the final interest paid.

Key Loan Components

• Principal: The initial amount of money you borrow. The "Loan Amount" you enter above.
• Interest: The cost of borrowing money, expressed as a percentage rate. Each month, a portion of your payment goes towards paying off the interest accrued on your outstanding balance.
• Term: The length of time you have to repay the loan, typically in years.

What is an Amortization Schedule?

An amortization schedule is a complete table of periodic loan payments, showing the amount of principal and interest that make up each payment until the loan is paid off. At the beginning of your loan, a larger portion of your payment goes toward interest. As you pay down the balance, this shifts, and more of your payment goes toward reducing the principal.

The Power of Extra Payments

Making extra payments on your loan can have a massive impact. Because an extra payment goes entirely towards the principal balance, it does two powerful things:

1. It reduces the total interest you'll pay. By lowering your principal balance faster, you reduce the base on which future interest is calculated.
2. It shortens the loan term. You will pay off your loan months or even years earlier.

Use the "Extra Monthly Payment" field in our calculator to see a direct comparison of how much time and money you can save.