Amortization Calculator

This amortization calculator gives out the annual or monthly amortization schedule of a one time fixed interest loan. This calculator also gives out the monthly payment and total interest to be paid. This calculator takes both integer and decimal as parameters. If you tries to calculate the amortization schedule of a mortgage loan, please use our mortgage calculator.

Loan Amount$  
Loan Termyears
Interest Rate (APR)%
 

Monthly Pay:   $1,110.21

Total of 120 Loan Payments$133,224.60
Total Interest$33,224.60
Loan Amortization Graph
Payment Breakdown

Related:mortgage calculator | interest calculator | investment calculator


What is Amortization?

Webster's dictionary defines amortization as, "the systematic repayment of a debt". The emphasis is on the word "systematic". Amortizing a loan means paying it down, bit by bit.

Usually this means making regular monthly payments, and this is what is done for mortgage, for example. But any periodic payment over time to a loan is amortization.

The great advantage of amortization is that you know how much you have to pay each month, under a fixed interest rate, to finish paying off the loan at a specific time. You can work out an amortization table to show each payment.

Amortizing a Mortgage Loan

When you take out a mortgage, you make a monthly payment to the lender, and that is an amortization payment. A part of the payment covers the interest due on the loan, and the remainder of the payment goes to reduce the principal amount owed. Interest is computed on the current amount owed and thus will become progressively smaller as the principal is decreased. In the beginning, you will be making large interest payments and small payments to the principal. As time goes on, you will reduce the principal to the point that you haven't got much to pay in interest, and so your payment covers mostly the principal.

Take a look at the amortization table on the amortization calculator page to see how it works.

Credit Card Amortization

Credit card amortization is the process by which consumers pay off the debt that they have accumulated on their credit cards. Credit card providers require that you pay a minimum amount on that debt each month, but that payment is almost entirely made up of interest. When you plan amortization payments to pay off credit card debt, you plan payments large enough to cover the interest due, and to pay down the principal as well.

Interest on credit cards is determined by an Annual Percentage Rate, or APR, which is then compounded monthly against the principal still owed. Just as with a mortgage, as more money is paid by the consumer to the credit card company, the principals of credit card amortization show that there will be less interest owed on each payment if the card is not being used. We have a calculator customized for credit card amortization.

Amortization in Tax Law

The term 'amortization' has a somewhat different meaning in U.S. tax law, although it still applies to periodic payments.

The value of an asset, like a lawnmower or an airplane, decreases over time as the asset gets older and gets used more. This decline in value is called depreciation, and the loss in value each year is deducted from tax.

But what if you have an intangible asset, like a patent, or a copyright? Under section 197 of U.S. law, the value of these assets can also be deducted, bit by bit, year by year. This periodic process is called amortization. These are the intangible assets you are allowed to amortize:

  1. Goodwill;
  2. Going concern value
  3. Workforce in place (that is, 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. A patent, copyright, formula, process, design, pattern, know-how, format, or similar item
  6. A customer-based intangible, including customer base and relationships with customers
  7. A supplier-based intangible (the value of future purchases due to relationships with vendors)
  8. Any item similar to items (3) through (7)
  9. A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals)
  10. A covenant not to compete or non-compete agreement entered into in connection with the acquisition of an interest in a trade or business; and
  11. A franchise, trademark, or trade name
  12. A contract for the use of, or a term interest in, any item in this list.

Just as with a loan, you can calculate the periodic decline in value using an amortization table.

Amortization in Business

In business, it is sometimes possible to amortize a cost over several years of revenue. This is done in some kinds of leasing contracts and long-term contracts. The advantage, for the business, is that the cost does not have an excessive impact on the business's annual revenue and profit.