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What Exactly is an Amortization Schedule?

Your loan payment schedule is a breakdown of how your debt service is divided among monthly payments. The figures in this table tell you how much principal and interest you will pay in each monthly installment. Like any loan, the amortization schedule shows you how much money you’ve paid in interest. The last line indicates how much interest you’ll end up paying over the course of the loan.

Moreover, the schedule is somewhat similar to depreciation; the only difference between them is of the loan. This is why both of them have some methods too. To be concrete, this table is the sum of principal amount and interest amount for the loan.

Terms About Amortization Schedule You Must Know

If you are unsure of anything on the amortization table, look it up. It will help you understand the loan better.

Principal Loan Amount: This is the amount that will be due to the lending institution. It does not include any additional charges, fee or interest.

Period of Loan: Time is money! This means that you should take the minimum number of years to pay off your loan.

Total Repayment: Here is the amortization schedule of the loan amount that you must pay to your lending institution.

Rate of Interest: Loan amortization schedule is basically a table which lists down the amount of principal and interest repaid over the years in the form of scheduled monthly installments.

Annual Interest Rate: The APR has been calculated at the time the loan was made, and it is a true representative of the actual cost of each loan.

Cumulative Interest: The loan amortization schedule is used to keep track of how much interest you’ve paid on your loan.

Factor Rate: This is the amount of money in cents determining how much the borrower will have to pay per month for a loan. It is usually used for short term loans.

Beginning Balance: The first column of a loan amortization schedule, which is a table that shows how a loan is repaid, shows the balance of a loan after each loan payment has been made.

Ending Balance: This is the amount you will be left with after you pay off your loan.

Amortization Schedule Excel

Types of Amortization Schedule

If you’re trying to find a way to clear your debts as fast as possible, you may want to consider using a different type of amortization schedule.

Monthly Loan Schedule

This type of loan is a multi-year loan with monthly payments. If you want to know how long it will take to repay, just calculate the payments on a monthly basis.

Weekly Loan Schedule

If you’re paying a loan through a weekly amortization schedule, you have to pay attention to the frequency of compounding.

Monthly payments cover the interest but not the principal. But on a weekly basis, payments compound interest on a daily basis, so your weekly payments will go towards the principal as well as the interest.

Daily Loan Schedule

A loan amortization schedule is a chart that shows how much you’ll have to pay monthly, quarterly, semi-annually or annually. It’s a helpful way to see the interest and payment amounts you’ll be making. If you were to make monthly payments on the loan, the interest would be compounded each month.

Scheduling Extra Payments in Amortization Schedule

Amortization is the gradual repayment of debt in regular installments. There are various types of amortization schedules that include the bullet, the level, and the step-payment. One can also pay off their loans early with extra payments.

Regular Extra Payments

If you choose to make extra payments towards your mortgage each month, instead of paying the monthly amount that’s listed on the schedule, you’ll be able to pay off your mortgage sooner.

Occasional or Sporadic Extra Payment

If you are running a seasonal business, you will experience times when it is hard to make extra payments on the loan. For example, you have taken a loan of $200,000 for your Christmas Tree business. If you set a small extra payment of $2000 in your schedule, you can see how it minimizes the amount of time until the loan is paid off.

Lump Sum End Payment

Some small business owners like to finish off their loan as quickly as possible and pay off the entire loan amount at one time. This tool will help you visualize and manage your debt. For example, if you’ve taken out a $500,000 loan, the amortization schedule will show you when it’s paid off and save you money in interest.

While it may not make a big difference to save money on an extra payment here or there, putting down extra payments on a regular basis will reduce the length of the amortization period for your loan and save you money.

Prepayment Penalty

If you pay your loans fast , you may end up paying extra fees. It’s important to check the clauses in your loan agreement before making any big decisions.

Amortization Schedule Examples

Common Methods Used to Develop Amortization Schedule

In finance, an amortization schedule is a table that is used by companies to spread the cost of an asset through its estimated life. The table can be used in order to show a more accurate picture of a business’s financial health.

Straight Line Method

One of the most effective methods for calculating amortization involves taking out the difference between scrap value and amount at which equipment was purchased and dividing it with its estimated useful life in years.

Double Declining Balance Method

By using double declining balance, you can calculate the amount payable by multiplying the initial cost by double.Take out the difference of the initial cost and scrap value, divide it by the useful life in years, and double the result.

Balloon Method

In this form of method, the remaining balance of the loan comes after the portion of annual payments. This form is used when a business does not have repayment capacity instead it has limited repayment capacity in the early years.

Quick Guide to Making an Amortization Schedule

Here’s a quick guide to making an amortization table.

  • Open up a new spreadsheet in MS Excel
  • Mention labels in cells downwards
  • Create information related to your loan
  • Mention the monthly payment amount and the average amount of principle you’ll pay back per month.
  • Enter the term of your loan, interest rate, and the amount you want to borrow.

The amortization schedule spreadsheet on our website can help you plan your loan payments. All you have to do is edit the spreadsheet, and you will have your amortization schedule.

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