# How to Read a Loan Amortization Table

By TIna RuhlowLast Updated Mar 30, 2021 10:53:13 AM ET
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If you want to keep up with loan payments, particularly when it comes to a fixed-interest loan, using an amortization table can be incredibly helpful. Not only can a loan amortization table help you keep up with your monthly payments, but it’s also great for understanding your interest costs as the loan balance decreases. Not familiar with how an amortization table works? Don’t worry — we’ll walk you through how to make, read, and use one.

## What Is an Amortized Loan?

An amortized loan is a type of loan with scheduled payments that go toward paying off both the loan’s principal amount and interest. Most types of loans that you pay back on a monthly basis tend to be amortized loans — think auto, home equity, and personal loans. Another great example of this type of loan structure is a fixed-rate mortgage.

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When you make monthly payments on an amortized loan, part of your payment goes to paying off interest, while the rest goes towards paying off your principal. An amortization table is a handy way to calculate how much of your monthly payment is going to each category, especially since this ratio will change as your total balance decreases.

The average amortization table calculates several things, including:

• Monthly Balance: This column keeps a record of your total remaining balance.
• Monthly Payment: If you have a fixed-rate loan, this column will likely include the same payment amount each month. Once you make your payment, you'll be able to subtract it from the monthly balance.
• Interest Paid: This is where you'll see how much of your monthly payment is going toward the interest. In order to find this figure, multiply your remaining loan balance by your monthly interest rate.
• Principle Paid: Once you figure out how much of your payment went toward paying off interest, subtract that number from the entire payment you made. The remaining money will be the amount that went toward your principal.
• Remaining Balance: This is the new monthly balance you'll start with for the next month’s payment. In other words, subtract your payment from the old monthly balance to find the new remaining balance.

When you first start making payments, you'll notice that your interest costs are at their highest. As you make more payments, however, there will be less and less principal to charge interest on. In turn, you’ll notice that a little more of your payment will go toward paying off your principal.

## How Do You Make a Loan Amortization Table?

Making your own amortization chart using Microsoft Excel, or even using an Excel loan payment template, can be a great, firsthand way to see how it all works. There's even a free website called amortization-calc.com that’s able to do the math for you, so long as you input your loan type, amount, interest rate, and term.

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In addition to helping you look ahead to future payments, an amortization chart can come in handy before you even take out a loan. For example, while it may initially seem like making the lowest possible payment every month is the way to go, a loan amortization calculator may tell a different story. That is, in some cases, by paying less each month — or selecting a longer repayment term — you may end up paying far more interest in the long run.

So, before settling on repayment terms, try running a couple of options through an amortization table to see what will yield the best rate overall. This strategy can also help you decide whether refinancing a loan or, if possible, paying it off early is the way to go.

## Loans That Do and Don't Work With an Amortization Chart

As helpful as an amortization loan chart can be, it can not be used in conjunction with every type of loan. That is, these tables only work when forecasting installment loans or fixed-rate loans that allow you to pay down the balance over time.