Understanding Your Loan Amortization Schedule
An amortization schedule is the key to understanding where your money goes every month. This guide breaks down how to read one and what it reveals about your loan.
What is an Amortization Schedule?
An amortization schedule is a comprehensive table that details each periodic payment on a loan. It provides a complete breakdown of every EMI, showing how much of your payment is applied to interest and how much goes towards reducing your principal loan balance.
Key Columns Explained
The key columns you'll see in our calculator's schedule are:
- Opening Balance: The outstanding loan amount at the start of the month.
- EMI: Your fixed monthly payment.
- Interest Paid: The portion of your EMI that covers the cost of borrowing for that month.
- Principal Paid: The portion of your EMI that reduces your loan balance.
- Closing Balance: The remaining loan amount after your payment is applied.
The Shifting Balance of Principal and Interest
The most important concept an amortization schedule reveals is how the composition of your EMI changes over time.
In the beginning of your loan, the majority of your EMI goes towards paying interest because the outstanding principal is at its highest. A smaller portion goes to principal reduction.
As you progress through the loan tenure, this balance shifts. With each payment, the principal decreases, which in turn reduces the amount of interest charged in the next period. Consequently, a larger and larger portion of your fixed EMI goes towards paying down the principal. This is why your loan balance seems to decrease very slowly at first and then accelerates towards the end.
Generate Your Own Schedule
The best way to understand this is to see it with your own numbers. Use our calculator to generate a detailed, month-by-month amortization schedule for your loan.
Go to the Loan Calculator & Simulator