Loan Amortization Calculation Formula

The formulas employed for amortization calculation could be type of confusing. So, let us begin by explaining amortization, basically, as the entire process of reducing the need for an resource or even the balance of the loan with a periodic amount. Every time you create a payment on the loan you have to pay some interest together with an element of the principal. The main may be the original amount borrowed, or even the balance that you need to repay. By looking into making regular periodic obligations, the main progressively decreases, so when it reaches zero, you've completely compensated off your financial troubles.
mortization Calculation

Usually, whether you really can afford financing is dependent on whether you really can afford the periodic payment (generally payments period). So, the most crucial amortization formula is most likely the calculation
from the payment amount per period.

Calculating the Payment Amount per Period
The formula for calculating the payment amount is proven below.

where

• A = payment Amount per period
• P = initial Principal (loan amount)
• r = interest rate per period
• n = total number of payments or periods

Example: What would the monthly payment be on a 5-year, $20,000 car loan with a nominal 7.5% annual interest rate? We'll assume that the original price was $21,000 and that you've made a $1,000 down payment.
You can use the amortization calculator below to determine that the Payment Amount (A) is $400.76 per month.

P = $20,000
r = 7.5% per year / 12 months = 0.625% per period
n = 5 years * 12 months = 60 total periods

Calculating the Monthly Payment in Excel

Microsoft Excel has a number of built-in functions for amortization formulas