Amortization Schedule
Candlefocus EditorTypically, the borrower’s initial loan payment will include a mix of interest and principal. For example, if the borrower is paying off a loan with a 5% interest rate and the amount is $100,000, the initial payment would include $416.67 in interest and $625 in principal. As the borrower makes each monthly payment, the amortization schedule shows how much of the monthly payment is going toward interest and how much is being applied toward the principal balance.
One of the primary benefits of an amortization schedule is that it makes loan repayment more predictable. As the borrower makes each payment, the interest portion goes down and the principal payment portion increases. This helps the borrower plan ahead and make adjustments to their budget to ensure the loan is paid off on time.
At the end of the loan term, the schedule will show the interest, principal, and total loan amount that have been paid off. At that point, if all payments have been made on time, the loan will appear to be paid in full.
It is important to note that while an amortization schedule may be used as a helpful tool in managing debt, it is only as useful as the borrower is diligent in making timely payments. Borrowers should always stay informed with their loan amortization schedule and aim to make on-time payments in order to fulfill the loan obligations and avoid extra fees and penalties.