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Loan amortization calculator: payment, interest and schedule

An amortizing loan is repaid in equal payments that cover the month's interest first and reduce the principal with the rest. A 100,000 loan at 6% a year over 60 months costs 1,933.28 a month and 15,996.81 in total interest. Early payments are mostly interest; later ones are mostly principal.

Calculate your loan payment and schedule

%

Nominal annual rate; the calculator uses one twelfth of it per month.

months

Results

Monthly payment
1,933.28
Total interest
15,996.81
Total of all payments
115,996.81
Amortization schedule
MonthPaymentInterestPrincipalRemaining balance
11,933.28500.001,433.2898,566.72
21,933.28492.831,440.4597,126.27
31,933.28485.631,447.6595,678.62
41,933.28478.391,454.8994,223.74
51,933.28471.121,462.1692,761.58
61,933.28463.811,469.4791,292.10
71,933.28456.461,476.8289,815.28
81,933.28449.081,484.2088,331.08
91,933.28441.661,491.6286,839.46
101,933.28434.201,499.0885,340.37
111,933.28426.701,506.5883,833.79
121,933.28419.171,514.1182,319.68
131,933.28411.601,521.6880,798.00
141,933.28403.991,529.2979,268.71
151,933.28396.341,536.9477,731.77
161,933.28388.661,544.6276,187.15
171,933.28380.941,552.3474,634.81
181,933.28373.171,560.1173,074.70
191,933.28365.371,567.9171,506.80
201,933.28357.531,575.7569,931.05
211,933.28349.661,583.6268,347.43
221,933.28341.741,591.5466,755.88
231,933.28333.781,599.5065,156.38
241,933.28325.781,607.5063,548.88
251,933.28317.741,615.5461,933.35
261,933.28309.671,623.6160,309.73
271,933.28301.551,631.7358,678.00
281,933.28293.391,639.8957,038.11
291,933.28285.191,648.0955,390.02
301,933.28276.951,656.3353,733.69
311,933.28268.671,664.6152,069.08
321,933.28260.351,672.9350,396.15
331,933.28251.981,681.3048,714.85
341,933.28243.571,689.7147,025.14
351,933.28235.131,698.1545,326.99
361,933.28226.631,706.6543,620.34
371,933.28218.101,715.1841,905.16
381,933.28209.531,723.7540,181.41
391,933.28200.911,732.3738,449.04
401,933.28192.251,741.0336,708.00
411,933.28183.541,749.7434,958.26
421,933.28174.791,758.4933,199.77
431,933.28166.001,767.2831,432.49
441,933.28157.161,776.1229,656.37
451,933.28148.281,785.0027,871.37
461,933.28139.361,793.9226,077.45
471,933.28130.391,802.8924,274.56
481,933.28121.371,811.9122,462.65
491,933.28112.311,820.9720,641.68
501,933.28103.211,830.0718,811.61
511,933.2894.061,839.2216,972.39
521,933.2884.861,848.4215,123.97
531,933.2875.621,857.6613,266.31
541,933.2866.331,866.9511,399.36
551,933.2857.001,876.289,523.08
561,933.2847.621,885.667,637.41
571,933.2838.191,895.095,742.32
581,933.2828.711,904.573,837.75
591,933.2819.191,914.091,923.66
601,933.289.621,923.660.00
115,996.8115,996.81100,000.00

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Loan payment formula

The payment is the constant amount whose present value at the monthly rate equals the loan. Each month, interest is charged on the opening balance and the rest of the payment repays principal.

Monthly rate
i = Annual rate / 12
Payment
PMT = P × i / (1 - (1 + i)^-n)
Interest for a month
Interest = Opening balance × i
Principal repaid
Principal = PMT - Interest
Total interest
Total interest = PMT × n - P

P is the loan amount and n the number of monthly payments. With a 0% rate the payment is simply P / n. The last payment absorbs rounding so the balance ends at exactly zero.

Worked example: a 100,000 equipment loan

A company borrows 100,000 at 6% a year over 5 years (60 months). The monthly rate is 0.5%, and the payment is 100,000 × 0.005 / (1 - 1.005^-60) = 1,933.28.

In month 1, interest is 100,000 × 0.5% = 500, so 1,433.28 reduces the principal. By month 60, interest is only 9.62. Over the life of the loan the company pays 115,996.81, of which 15,996.81 is interest.

First and last months of the schedule
MonthPaymentInterestPrincipalBalance
11,933.28500.001,433.2898,566.72
21,933.28492.831,440.4597,126.27
31,933.28485.631,447.6595,678.62
601,933.289.621,923.660.00

Assumptions behind the result

  • Fixed interest rate for the whole term, compounded monthly, with payments at the end of each month.
  • No arrangement fees, insurance or grace periods. Fees raise the effective cost above the nominal rate.
  • No early repayments; an extra payment reduces the balance and the interest of every later month.
  • Amounts are rounded to two decimals for display; the schedule uses full precision.

How to record loan payments in your books

Only the interest part of each payment is an expense; the principal part reduces the liability. Splitting each payment with the schedule keeps the income statement and the loan balance correct.

For month 1 of the example the journal entry debits interest expense 500 and the loan payable 1,433.28, and credits the bank 1,933.28. At year end, the principal due within twelve months is shown as a current liability.

Journal entry for the first loan payment
AccountDebitCredit
Interest expense500.00
Bank loan payable1,433.28
Bank1,933.28

Nominal rate, effective rate and APR

A 6% nominal rate compounded monthly is an effective annual rate of about 6.17%, because interest is charged on interest each month. Lenders often quote an APR that also includes fees, so compare loans on the same basis.

If the loan funds an asset, its interest cost and the asset's depreciation together tell you the true yearly cost of owning it.

How to build a loan amortization schedule

  1. 1

    Convert the rate

    Divide the annual rate by 12 to get the monthly rate: 6% becomes 0.5%.

  2. 2

    Compute the payment

    Apply PMT = P × i / (1 - (1 + i)^-n) with the loan amount and the number of months.

  3. 3

    Split month 1

    Interest is the opening balance times the monthly rate; the rest of the payment is principal.

  4. 4

    Roll forward

    Subtract the principal from the balance and repeat for each month until the balance reaches zero.

  5. 5

    Post the entries

    Each month, debit interest expense and the loan liability and credit the bank account.

FAQ

Frequently asked questions

How is a monthly loan payment calculated?

With the annuity formula PMT = P × i / (1 - (1 + i)^-n), where P is the loan, i the monthly rate and n the number of months. For 100,000 at 6% over 60 months the payment is 1,933.28.

Why is most of my early payment interest?

Interest is charged on the outstanding balance, which is highest at the start. As principal is repaid the interest share falls and the principal share grows, while the payment stays the same.

Does paying extra principal save interest?

Yes. Every extra amount reduces the balance on which all future interest is charged. Check the loan agreement first, since some lenders charge an early repayment fee.

Is the loan payment an expense?

Only the interest part. The principal part repays a liability and does not appear in the income statement.

What is the difference between amortization and depreciation?

Loan amortization is the repayment of debt over time. Depreciation spreads the cost of a tangible asset over its useful life. Amortization is also used for spreading the cost of intangible assets.

Last reviewed:

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