By Justin Pritchard. Banking/Loans Expert
Justin Pritchard helps consumers navigate the world of banking.
An amortization table shows how a loan works. It details every monthly payment, showing how much of that payment covers interest costs, and how much of the payment actually reduces the loan balance (or the amount you owe). The table shows how and when a loan will be paid off.
You can also figure out if it’s worth it to refinance (will it actually cost you more in interest, given the amount of time left on your loan?).
Doing is Learning
The best way to understand an amortization table is to see one and use one. Try one of the approaches below:
For practice, build an amortization schedule for a loan you currently have, or that you’re thinking of getting. You may learn a lot, and it may help you make the right decision.
When Amortization Tables Don’t Work
Amortization tables only work on amortizing loans. These are one-time loans that get paid off over time with a fixed payment (the payment is the same amount every month or every quarter). Most automobile loans and home loans fall into this category. However, other types of loans exist. For example, credit cards are different: you borrow more than once (every time you make a purchase), and you make irregular repayments (you can pay off your entire balance, or make the minimum payment).