Loan payment & amortization calculator

How fixed-rate amortizing loans work

In a standard amortizing commercial or term loan, your scheduled monthly payment stays the same; the final payment adjusts to clear the remaining balance. However, the internal division of that payment changes continuously:

• Early payments: Because the remaining loan principal is at its highest, more of each payment goes toward interest than it does near the end of the loan.
• Later payments: As the principal balance drops, the monthly interest charge shrinks. More and more of your monthly payment goes toward eliminating the remaining debt.

A worked example

Suppose you borrow $50,000.00 for equipment at a 7.5% annual interest rate on a 5-year (60-month) term:

• Your monthly payment is $1,001.90.
• In month 1, interest is $50,000 × (0.075 / 12) = $312.50. Principal paid is $1,001.90 − $312.50 = $689.40. Remaining balance becomes $49,310.60.
• Over the full 60 months, you pay a total of $10,113.81 in interest, making the full cash cost of the equipment $60,113.81.
• If you pay an extra $100/month towards principal ($1,101.90 total), you pay off the loan 6 months early and save $1,128.81 in interest.

Common mistakes

The most common mistake is multiplying the annual rate by the principal and multiplying by years (simple interest). For example, calculating 7.5% x $50,000 x 5 = $18,750 in interest. That significantly overstates the true cost because the loan balance decreases every single month. Another mistake is ignoring origination or documentation fees, which increase your true annual percentage rate (APR).