Plot No. 4 · Money & Finance
Loan Amortization Calculator
See how a fixed-rate loan is paid off year by year. Compare how much of each year's payment goes to interest versus principal, and how the balance shrinks over time.
| Year | Principal paid | Interest paid | Balance |
|---|---|---|---|
| 1 | £3,425 | £1,384 | £16,575 |
| 2 | £3,691 | £1,118 | £12,884 |
| 3 | £3,978 | £831 | £8,906 |
| 4 | £4,287 | £523 | £4,619 |
| 5 | £4,619 | £190 | £0 |
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How loan amortization works
Amortization is the process of paying off a loan with equal payments over a fixed term. Each payment is split between interest on the remaining balance and a repayment of the principal. This calculator builds the full schedule for any fixed-rate, level-payment loan and groups it into a year-by-year table so you can watch the balance fall.
Early in the loan the balance is large, so most of each payment is eaten by interest and only a little reduces the principal. As the balance shrinks, the interest portion falls and more of every payment chips away at what you owe. That shifting split is the heart of the table this tool produces.
How to use the loan amortization calculator
- Enter the loan amount you are borrowing.
- Set the annual interest rate and the term in years.
- Read the monthly payment and total interest, then scan the table to see principal, interest and balance for each year.
Worked examples
A 20,000 car loan at 7.5 percent over 5 years
Inputs: Loan amount 20,000, rate 7.5 percent, term 5 years.
Result: A monthly payment of about 400.76, total interest of roughly 4,046 and a total repaid of about 24,046. The year-one row shows the highest interest, which then falls every year.
Reading the split over time
Inputs: The same loan, comparing year one with the final year.
Result: In the first year far more of your payments go to interest than principal. By the final year almost the entire payment reduces the balance, which reaches zero.
Limitations and common mistakes
Edge cases and limitations
- Payments and the schedule assume a single fixed rate held for the whole term. Variable-rate loans will drift from this projection.
- Overpayments are not modelled yet, though in reality even small regular overpayments cut total interest and shorten the term.
- Rows are grouped by year and rounded to whole pounds, so the displayed annual figures may differ slightly from a month-by-month statement.
Common mistakes
- Expecting the principal and interest to be split evenly. They are not, and the imbalance is largest at the start.
- Comparing loans on monthly payment alone. The total interest line is the truer measure of cost.
Frequently asked questions
Why does interest dominate the early years?
On a level-payment loan, the monthly payment is fixed but interest is calculated on the remaining balance. Early on the balance is high, so most of the payment goes to interest. As the balance shrinks, more of each payment chips at the principal.
How do overpayments affect this schedule?
Overpayments reduce the principal directly, which means less interest is charged in every subsequent month. Even small regular overpayments can shave years off a loan. This calculator doesn't model them yet but a version will.
Does this work for car loans and personal loans?
Yes. Any fixed-rate, fixed-term, level-payment loan follows the same amortization math: mortgages, car loans and most unsecured personal loans.
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