| An amortized loan can be a car loan or a home loan, | | | | For the first month, the interest owed for $100,000 is |
| as long as it is for one specific amount that is to be | | | | equal to $541.67. The remainder of the payment, |
| paid off by a certain date in equal installments. Parts of | | | | $90.40, goes toward principal, thereby reducing the |
| the payment go toward the interest cost and the | | | | debt by that amount. |
| remainder goes toward the principal amount. Interest | | | | The interest owed drops down to $99,909.60 in the |
| calculated is based on the current amount owed. As | | | | second month, so $541.18 goes to interest and $90.89 |
| the ending balance of the loan reduces, the interest | | | | goes to principal. The interest goes on decreasing with |
| also decreases progressively, termed as | | | | each passing month while the principal reduction |
| "amortization." | | | | increases, and continues until $3.41 goes to interest and |
| Like mortgages, with an amortized loan during the first | | | | $628.66 to principal on the 360th payment. |
| few months/years of the loan term, a greater | | | | Basically, half the loan has been paid off after 256 |
| percentage of the payment goes toward interest in | | | | payments (21 years and 4 months). The other half can |
| comparison to principal balance or the amount | | | | be paid off in 8 years and 8 months. A typical |
| borrowed. This can be explained with a mortgage loan | | | | amortization schedule calculator would produce an |
| for $100,000 at 6.5 percent for 30 years as an | | | | amortization table displaying how much interest and |
| example: | | | | how much principal, from the first to the last, is included |
| The monthly principal and interest payment is $632.07. | | | | in each monthly payment. |