Amortization Schedule

Amortization schedule summary:

• An amortization schedule is a table that breaks down how much of your monthly payment goes toward the principal balance vs. interest. 

• Amortization schedules are helpful for loans repaid in installments–like mortgages, car loans, student loans, and debt consolidation loans.

• As the loan balance drops, less of your payment goes to interest and more is allocated to repaying the principal.

Amortization Schedule Definition and Meaning

An amortization schedule is a table that breaks down how much of your monthly payment goes toward repaying the principal balance vs. interest. An amortization schedule can be helpful when you plan your monthly budget, compare loan options, or consider the impact of making extra payments. Amortization tables are also useful when you’re weighing the cost of continuing to pay your loans against a debt settlement agreement. 

Types of Loans That Have Amortization Schedules

You can use an amortization schedule if you have an amortizing loan, which is a loan with a fixed monthly payment and interest rate. Examples of loans that can use an amortization table include:

• Mortgages

• Auto loans

• Student loans

• Personal loans, including debt consolidation loans

• Home equity loans

You won’t use an amortization schedule for revolving credit, like credit cards or home equity loans, which let you borrow up to your credit limit and pay whatever amount you choose each month as long as you make minimum payments. Because your balance and payments fluctuate, there’s no fixed repayment schedule.

Key Components of an Amortization Schedule

An amortization schedule includes:

• Total loan amount (principal) and interest rate

• Loan term and total number of payments

• Monthly payment amount

• Principal payments, which is the amount of each payment that goes toward the principal balance

• Interest payments, which is the amount of each payment that goes toward interest

• Outstanding balance after each payment

Note that your interest payments start off high and decrease as you pay down the balance. Meanwhile, the amount that goes toward your principal balance will increase over time as you chip away at your debt.

Real-World Example of an Amortization Table

Let’s assume you borrowed $5,000 for a debt consolidation loan. Your interest rate is fixed at 10%, and your repayment term is 12 months. Here’s what your amortization schedule would look like.

Many lenders will give you a copy of your amortization schedule when you take out a loan. If you don’t receive one, you can plug your balance, monthly payment, interest rate, and loan term into an online calculator to create an amortization table.