Amortization Calculator

Loan Amount 
Loan Termyears
Interest Rate (APR)%
 

Monthly Pay:   $1,687.71

Total of 180 Loan Payments$303,788.46
Total Interest$103,788.46
Loan Amortization Graph
Payment Breakdown

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While our Amortization Calculator can serve as a basic tool for all amortized items, we have specific calculators for common situations. For these specific purposes, it is probably better to use them instead.

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What is Amortization?

Webster's dictionary defines amortization as "the systematic repayment of a debt." There are two general uses to amortization: paying off a loan over time, or spreading the cost of an expensive and long-life item over many periods.

Paying Off a Loan Over Time

When a borrower takes out a mortgage, car loan, or personal loan, they usually make monthly payments to the lender; these are some of the most common uses of amortization. A part of the payment covers the interest due on the loan, and the remainder of the payment goes toward reducing the principal amount owed. Interest is computed on the current amount owed and thus will become progressively smaller as the principal is decreased. During the earlier stages of an amortization process, larger portions of the payments made are for interest. As time goes on, the principal portion will gradually increase until the principal becomes zero. It is possible to see this course of action at work on the amortization table.

Credit cards, on the other hand, are generally not amortized. They are called revolving debt instead, where the outstanding balances can be carried month-to-month, and the amount repaid each month can be varied. Please use our Credit Card Calculator for more information, or our Credit Cards Payoff Calculator to schedule a financially feasible way to pay off multiple credit cards. Examples of other loans that aren't amortized include interest-only loans and balloon loans. The former includes an interest-only period of payment and the latter has a large principal payment at loan maturity, both unrelated to traditionally-structured amortization schedules.

Spreading Costs

Businesses like to purchase expensive items that are used for long periods of time that are classified as investments. Commonly amortized items for the purpose of spreading costs include machinery, buildings, and equipment. From an accounting perspective, a sudden purchase of expensive factory during a quarterly period can skew the financials, so its value is amortized over the expected life of the factory instead. Although it can technically be considered amortizing, this is usually referred to as the depreciation expense of an asset amortized over its expected lifetime. Use our Depreciation Calculator to depreciate items according to conventional accounting standards.

Amortization as a way of spreading business costs generally refer to intangible assets like a patent or copyright. Under Section 197 of U.S. law, the value of these assets can be deducted month-to-month or year-to-year. Just like with any other amortization, payment schedules can be forecasted by a calculated amortization schedule. The following are intangible assets that are often amortized:

  1. Goodwill, which is the reputation of a business regarded as a quantifiable asset
  2. Going-concern value, which is the value of a business as an ongoing entity
  3. Workforce in place (current employees, including their experience, education, and training)
  4. Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers
  5. Patents, copyrights, formulas, processes, designs, patterns, know-hows, formats, or similar items
  6. Customer-based intangibles including customer bases and relationships with customers
  7. Supplier-based intangibles including the value of future purchases due to existing relationships with vendors
  8. Licenses, permits, or other rights granted by governmental units or agencies (including issuances and renewals)
  9. Covenants not to compete or non-compete agreements entered relating to acquisitions of interests in trades or businesses
  10. Franchises, trademarks, or trade names
  11. Contracts for the use of, or term interests in any items on this list

Some intangible assets, with goodwill being the most common example, that have indefinite useful lives or are "self-created" may not be legally amortized for tax purposes.

According to the IRS under Section 197, some assets are not considered intangibles including interest in businesses, contracts, or land, most computer software, intangible assets not acquired in connection with the acquiring of a business or trade, interest in existing lease or sublease of tangible property or existing debt, rights to service residential mortgages (unless it was acquired in connection with the acquisition of a trade or business), or certain transaction costs incurred by parties to a corporate organization in which any part of a gain or loss is not recognized.

Business Tax Purposes

In the U.S., amortization is a legal expense of doing business and can be utilized to reduce an organization's taxable income, which many companies take advantage of. Depreciation, which can be defined as the amortization of tangible assets, is found on most companies' income statements as an expense that is generally tax deductible. Depending on each company and what their business entails, tangible assets depreciated can be factory machinery, trucks, and various equipment. Intangible assets can be any of the examples listed above excluding the exceptions right underneath. All amortizable assets are disclosed on Form 4562 provided through the IRS where new assets are listed first, and then subsequent assets that are in the midst of an amortization schedule from previous years. The calculated results are then transferred to the relevant tax return forms, depending on type of business such as sole proprietorship or corporation.

Amortizing Startup Costs

An exception to amortization in business tax are business startup costs, which are defined as costs incurred to investigate the potential of creating or acquiring an active business and to create an active business. They must be the expenses deducted as business expenses if incurred by an existing active business, and must be incurred before the active business begins. Examples of these so-called costs include consulting fees, financial analysis of potential acquisitions, advertising expenditures, and payments to employees, which all must incur before the business is deemed active. According to IRS guidelines, initial startup costs must be amortized, and $5,000 can be deducted during the first tax year of the business.