Loans & Credit

What Is Amortization?

Amortization is the process of paying off a loan through regular, equal payments over a set period. Each payment covers the interest due for that period plus part of the principal, so the balance falls to zero by the end of the loan term.

How an Amortization Schedule Works

An amortization schedule is a table showing every payment, how much of it goes to interest, how much goes to principal, and the remaining balance. Because interest is calculated on the outstanding balance, the interest portion is largest at the start and shrinks over time, while the principal portion grows.

Why It Matters

The schedule shows how much total interest a loan costs and how extra payments change the payoff date. It applies to mortgages, auto loans, student loans, and most personal loans.

Amortization Formula

The fixed payment is M = P × i × (1 + i)^n ÷ ((1 + i)^n − 1), where P is the principal, i is the periodic interest rate, and n is the number of payments.

🧮 Calculate It Yourself

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📅 Amortization Schedule Calculator See your full year-by-year loan breakdown and what an extra payment saves. Calculate → 🏠 Mortgage Calculator Estimate your monthly mortgage payment including taxes, insurance, and PMI. Calculate → 💳 Loan Calculator (EMI) Works for any loan type — find your monthly payment and total interest. Calculate →

🔗 Related Terms

Principal Loan Term Mortgage EMI (Equated Monthly Installment) Reducing Balance Rate

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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.