| Applying for a loan can be a daunting task for a | | | | The formula is very involved and looks like this where |
| consumer. Everyone worries about the prime lending | | | | P=Payment, I=interest and n=number of payments: |
| rate, loan terms and such. So it is important to know a | | | | P= I x principal x (1+I) x n / (1 + I) x n |
| little about how these things are calculated. | | | | You could try that for your self or just use one of the |
| An amortization table is exactly what you need to look | | | | many free amortization calculators like the one at |
| at before you take out any loan. Ask your lender to | | | | Aside from getting this information from a lender, there |
| show you one prior to the signing. | | | | are quite a few companies that sell amortization |
| An amortization schedule is a report that spells out in | | | | software like Slateboard's Quick Calc Pro Amortization |
| detail the effects of each payment on a loan | | | | software. See it at |
| throughout the life of that loan. This is typical of a | | | | With the software in hand, you could easily preview |
| mortgage loan since they are long term at 25 to 40 | | | | the financial impact of any loan you are considering. |
| years, but can be used on any type of loan. Car loans, | | | | Look for the best rate, put it into the calculator and |
| personal loans and student loans can all be reviewed | | | | figure exactly what the payments will be for a given |
| using an amortization schedule. | | | | term. |
| Every loan is split into two pieces: the principal (what | | | | This is especially useful when considering a re-finance |
| you are borrowing) and the interest (what you pay for | | | | or re-mortgaging. What happens is that all of the |
| the loan). An amortization table breaks down each | | | | interest paid on the original loan is lost. The re-finance |
| payment and tells you how much of your payment is | | | | stars the process all over again. |
| going to interest and how much goes towards paying | | | | There are also several different types of amortization |
| down the principal. | | | | schedules including linear, declining balance, annuity, |
| At the beginning of the loan, a large part of the | | | | bullet (all at one time) and increasing balance (negative |
| payment goes towards interest with very little going to | | | | amortization). Of these, the most common one is linear. |
| the principal pay down. The amount going to the | | | | Almost any financial web site has calculators available |
| principal increases as the term progress Usually, the | | | | freely. Simply Google "amortization calculators" and |
| final payment is somewhat lower than the previous | | | | you will see a plethora of free ones to choose from. |
| ones. | | | | Software like that mentioned above is also available |
| Additionally, the amortization chart shows interest paid | | | | openly either at your favorite software store or online. |
| to date, principal paid to date and principal remaining | | | | Again, just Google "amortization software". |
| after each payment. | | | | A little knowledge goes a long way and using an |
| As you can already see, this is a valuable tool for the | | | | amortization schedule is good preparation and even |
| savvy consumer to properly decide on the right loan | | | | better foreknowledge. |
| deal. | | | | |