How Loan Amortization Works
Amortization is the process of paying down a loan through scheduled payments. Early payments often contain more interest, while later payments contain more principal.
Payment split
Each period, interest is calculated on the remaining balance. The rest of the payment reduces principal. As the balance falls, the interest portion usually falls too.
Why extra payments matter
Extra principal payments reduce the balance faster. A lower balance means future interest is calculated on a smaller amount, which can shorten the payoff timeline.
What an amortization schedule shows
- Payment number or date.
- Total payment.
- Principal paid.
- Interest paid.
- Remaining balance.