Amortization Calculator

What Is Amortization?

Amortization is the gradual repayment of a loan through scheduled installments over time. Each payment typically includes both interest and a portion of the principal, helping borrowers reduce their total debt in a predictable and manageable way.

Amortization is commonly associated with loans such as mortgages, car loans, and personal loans. Over time, as the loan is paid down, the interest component of each payment decreases while the principal portion increases. This process is detailed in an amortization schedule, which helps borrowers understand the breakdown of each payment.

In business accounting, amortization can also refer to the systematic allocation of the cost of intangible assets, such as patents or trademarks, over their useful life. While this type of amortization differs from loan repayment, it follows a similar logic: spreading cost over time.

How Is Amortization Calculated?

Amortization is calculated using a standard formula that accounts for the loan amount, interest rate, and repayment term. The formula ensures each monthly payment is consistent, even though the ratio of interest to principal changes over time.

Here is how it works:

• The interest is calculated on the outstanding loan balance.
• The principal is the portion of the payment that reduces the loan amount.
• As payments are made, the balance decreases, which means the interest paid becomes smaller and the principal repayment becomes larger. This shift is shown clearly in an amortization table.

For those asking how to calculate amortization, how amortization is calculated, or how to calculate amortization expense, this calculator automates the math and provides a complete amortization schedule.

How to Use the Amortization Calculator

Using our amortization calculator is simple and requires just a few inputs:

• Enter the total loan amount.
• Input the annual interest rate.
• Select the loan term (in months or years).
• Click "Calculate" to view the full amortization schedule.

The calculator will display:

• Your monthly payment amount
• Total interest paid over the life of the loan
• Remaining balance at any point
• A detailed amortization table, month by month

This tool is ideal for anyone wondering how to calculate an amortization schedule or planning their loan repayment strategy.

What Is an Amortization Schedule?

An amortization schedule is a detailed breakdown of every payment you'll make over the life of the loan. Each row of the schedule shows the payment date, payment amount, interest portion, principal portion, and remaining balance after the payment.

Amortization tables are valuable for understanding:

• How much interest you’re paying over time
• How much of each payment goes toward reducing the principal
• The impact of making extra payments

It’s important to note that standard amortization schedules assume fixed interest rates and regular payments. They may not apply to loans with variable rates, interest-only periods, or balloon payments.

Amortization in Accounting

Beyond loans, amortization also applies to accounting. It is used to spread out the cost of intangible assets, such as intellectual property or startup expenses, over their expected useful life.

Common examples of amortized intangible assets include:

• Patents
• Trademarks
• Copyrights
• Franchises
• Goodwill
• Licensing rights
• Non-compete agreements

Business owners often ask how to calculate amortization expense for tax or reporting purposes. In most cases, the straight-line method is used, dividing the total cost by the asset’s useful life in years.