Amortization Schedule: Calculate Loan Payments — Practical Guide

Calculate the periodic payment

Convert the annual rate into the rate for each payment period and multiply the number of periods by the term. For a monthly schedule, a 6% nominal annual rate is often modeled as 0.06 divided by 12, with 12 payments per year. Loan products can define rates and payment conventions differently, so read the note on your contract. If the rate changes, a single fixed-rate schedule no longer describes future payments.

Separate interest from principal

For each period, calculate interest as the beginning balance multiplied by the periodic rate. Subtract that interest from the payment to find the principal reduction. Then subtract principal paid from the beginning balance to get the new balance. Repeat for each payment and account for rounding to cents. If the payment does not cover the interest due, the balance may grow rather than fall; check for negative amortization and fees instead of assuming every loan reduces principal.

Compare early repayment scenarios

An extra principal payment can reduce later interest, but servicers may require it to be marked as principal-only. Verify the lender’s instructions and any prepayment terms before sending extra funds. Compare schedules using the same rate, payment date, and rounding rules. A web estimate may differ slightly from a statement because lenders use daily interest, payment posting dates, or other conventions. Keep the official amortization disclosure for contractual planning.

Worked example

Starting balance: $10,000
Monthly rate: 0.5%
Payment: $500
Month 1 interest: $10,000 × 0.005 = $50
Principal paid: $500 − $50 = $450
New balance: $9,550

Why does the interest portion decrease over time?

With a fixed rate, interest is calculated on the remaining balance. As principal is paid down, the next period’s interest charge usually falls.

Reference and further reading

Read the official documentation ↗