Technology
Amortization Schedule
Quick fact
An amortization schedule typically shows each payment’s breakdown into principal and interest, along with the remaining balance after each payment.
Why this is interesting
Ever wondered how your monthly loan payment is split between paying off the money you borrowed and the cost of borrowing it? The answer lies in an amortization schedule.
Read the full explanation
Understanding Amortization Schedule
Imagine a loan as a journey: you start with a large amount you owe (the principal), and over time, your payments gradually reduce that amount. An amortization schedule is like a roadmap showing where you are on this journey at every step.
A deeper explanation
An amortization schedule works by calculating each payment’s portion allocated to interest based on the current balance and the remaining term of the loan. The rest of the payment goes toward reducing the principal. As the balance decreases, the interest portion of each payment also decreases, while the principal portion increases. This ensures that by the end of the loan term, the entire amount borrowed has been repaid.