How it works
When you repay a personal loan, auto loan, or mortgage with fixed monthly installments, the total payment stays the same each month, but the internal split between interest and principal shifts dramatically over time. Because interest each month is calculated on the outstanding remaining balance, early payments are heavily weighted toward interest, while later payments pay down principal rapidly. This calculator generates the complete annual amortization table and quantifies the exact savings from extra monthly principal payments.
Standard Loan Amortization Formula
The fixed monthly payment M on a reducing-balance loan is calculated using the standard annuity equation:
M = P × [ r(1 + r)^n ] ÷ [ (1 + r)^n − 1 ]
- P (Principal): Initial loan amount borrowed.
- r (Monthly Interest Rate): Annual percentage rate divided by 12 months (
Annual Rate % ÷ 100 ÷ 12). - n (Total Payments): Total number of monthly installments (
Years × 12).
How Each Monthly Installment Is Allocated
| Component | Monthly Calculation Rule | Trend Over the Life of the Loan |
|---|---|---|
| Monthly Interest Portion | Current Remaining Balance × Monthly Rate (r) | Highest in Month 1; declines steadily every month |
| Principal Paid Down | (Scheduled Monthly Payment − Monthly Interest) + Extra Payment | Smallest in Month 1; accelerates every year |
| New Remaining Balance | Previous Balance − Principal Paid Down | Reaches 0.00 at the final scheduled (or accelerated) month |
A borrower takes a 100,000 loan at a 6% annual reducing rate for 10 years (120 months):
- Base Monthly Payment: 1,110.21.
- Total Interest (without extra payments): 33,224.60 (Total repaid: 133,224.60 over 120 months).
- With a 200/month extra principal payment: The payoff term drops from 120 months to 96 months (2 full years shaved off), and total interest drops to 25,849.49—saving 7,375.11 in interest.
Compare property financing terms with the /en/mortgage-calculator, run quick personal credit checks in the /en/loan-calculator, and see how investing your monthly savings after paying off debt compounds in the /en/investment-calculator.