Personal Loan Amortisation Calculator
Loan Summary
Total Amount Paid:
Total Interest Paid:
Monthly Payment:
| Month | Payment | Interest Paid | Principal Paid | Remaining Balance |
|---|
Understanding Personal Loan Amortisation
A personal loan can be a valuable financial tool, whether for consolidating debt, covering unexpected expenses, or funding a significant purchase. Understanding how your loan is repaid over time, known as amortisation, is crucial for effective financial planning. This Personal Loan Amortisation Calculator helps you visualise this process.
What is Loan Amortisation?
Loan amortisation is the process of paying off a debt over time through regular, scheduled payments. Each payment you make consists of two parts: a portion that covers the interest accrued since the last payment, and a portion that reduces the principal loan amount. As you continue to make payments, the proportion of your payment going towards the principal increases, while the proportion going towards interest decreases.
How the Amortisation Calculator Works
Our calculator uses standard financial formulas to determine your loan's repayment schedule. Here's a breakdown of the calculations:
1. Monthly Interest Rate
The annual interest rate is first converted into a monthly rate:
Monthly Interest Rate = Annual Interest Rate / 12
2. Total Number of Payments
The total number of payments is calculated based on the loan term in years:
Total Payments = Loan Term (Years) * 12
3. Monthly Payment Calculation
The core of the amortisation schedule is the fixed monthly payment. This is calculated using the following formula (the annuity formula):
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M= Your fixed monthly paymentP= The principal loan amount (the total amount borrowed)i= Your monthly interest rate (from step 1)n= The total number of payments (from step 2)
4. Amortisation Schedule
Once the monthly payment is determined, the calculator generates an amortisation table month by month. For each payment period:
- Interest Paid: Calculated on the outstanding principal balance from the previous period.
Interest Paid = Outstanding Balance * Monthly Interest Rate - Principal Paid: The portion of the monthly payment that reduces the loan's principal.
Principal Paid = Monthly Payment - Interest Paid - Remaining Balance: The new outstanding balance after the payment is applied.
Remaining Balance = Outstanding Balance (Previous Period) - Principal Paid
This process repeats until the remaining balance reaches zero.
Why Use an Amortisation Calculator?
- Budgeting: Predict your fixed monthly loan payments accurately.
- Loan Comparison: Understand the long-term costs of different loan offers (varying interest rates and terms).
- Early Repayment Strategy: See how extra payments can reduce the total interest paid and shorten your loan term.
- Financial Planning: Visualize your debt reduction journey and plan for future financial goals.
By inputting your loan details, you can gain a clear picture of your repayment trajectory, helping you manage your personal finances more effectively.