Loan amortization schedule explained: how to build and read one

An amortization schedule is the loan's timetable. It tells the borrower what to pay and when, tells the lender how much interest they will earn, and gives both a reference for what is owed at any point. If you lend on reducing balance terms, the schedule is the heart of the loan record.

This guide shows how to build one, how to read it, and what changes when payments are early, late or partial.

What is in an amortization schedule?

Each row is one installment, with these columns:

• Payment number and date. When the installment is due.
• Payment. The total due. On equal-installment loans this is the same each period.
• Interest. The rate for the period times the balance at the start of the period.
• Principal. Payment minus interest: the part that reduces the debt.
• Balance. What is still owed after the payment.

Some schedules add fees, penalties or running totals of interest and principal paid.

How to build an amortization schedule, step by step

We will use a loan of 1,000 at 12% a year, repaid monthly over 12 months, with equal installments.

1. Find the periodic rate. 12% a year ÷ 12 months = 1% a month, or 0.01.
2. Calculate the payment. Payment = P × r ÷ (1 − (1 + r)^−n) = 1,000 × 0.01 ÷ (1 − 1.01^−12) = 88.85.
3. Row one. Interest = 1,000 × 1% = 10.00. Principal = 88.85 − 10.00 = 78.85. New balance = 1,000 − 78.85 = 921.15.
4. Row two. Interest = 921.15 × 1% = 9.21. Principal = 88.85 − 9.21 = 79.64. New balance = 841.51.
5. Repeat until the balance is zero. Round each interest figure to the currency's smallest unit, and let the last payment absorb any rounding difference.

The full schedule

Total interest across the 12 payments is 66.19. Total repaid is 1,066.19.

How to read the schedule

• Interest falls every month. It is charged on a shrinking balance. Month 1 carries 10.00 of interest; month 12 carries 0.88.
• Principal rises every month. The payment is constant, so as interest falls, more of the payment repays the debt.
• The balance falls slowly at first. After six payments (half the term) the borrower has repaid only about 485 of principal, not 500, because early payments are interest-heavy.
• This matters for early settlement. A borrower who wants to settle after month 3 owes the outstanding balance of 761.08 plus any accrued interest and fees, not the sum of the remaining payments.

Equal installments vs equal principal

Some lenders divide the principal evenly and charge interest on the falling balance. This is the equal principal method. For the same loan, principal is 83.33 every month, and the payments start higher and decline:

Total interest is 65.00, slightly lower than equal installments because the debt is repaid faster. The first payment is 4.48 higher than with equal installments, which some borrowers find harder to manage.

What changes with early, late or partial payments

A schedule is a plan. Real payments deviate from it, and the loan record has to keep up.

• Early payment. If a borrower pays extra, the extra amount reduces principal, so later interest falls. Decide whether the borrower keeps the same payment (and finishes sooner) or the payment shrinks.
• Late payment. The installment is overdue, and penalties may apply. The schedule still shows the original due date; days past due are counted from it.
• Partial payment. A payment smaller than the installment must be allocated across interest, fees, penalties and principal. The order matters. See repayment allocation order.
• Interest after maturity. If the loan runs past its final due date, interest may continue on the outstanding balance under the agreement.

Good software recalculates the balance after each of these events, and shows a running record of what was applied.

Why lenders should generate schedules in software

A spreadsheet can build a schedule, but every change, an early payment or a rate adjustment, means editing formulas by hand, and one mistake propagates. Software that generates the schedule from the loan product has three advantages. It applies the same rules to every loan. It updates automatically as payments are recorded. And it produces a consistent statement the borrower can be given.

To build a schedule for your own numbers, use the free loan amortization schedule calculator, which lets you download the result as CSV.

Amortization schedules in LoanTabs

In LoanTabs each loan product defines the interest method and repayment frequency, and the schedule follows from them. A live schedule preview appears as you create a loan, so the installments are visible before you save. After disbursement, recording a payment allocates it in the order set on the product, and the loan statement, which can be printed as a PDF, shows the schedule and the payment history together. See loan servicing for how repayments are recorded, and how to calculate loan interest for the formulas behind each method.

FAQ

What does amortization mean?

Amortization means paying off a debt gradually through scheduled payments, each of which covers interest and reduces the principal.

How do I calculate an amortization schedule in Excel?

Use the PMT function for the payment, then for each row calculate interest as the previous balance times the periodic rate, principal as payment minus interest, and the new balance as the previous balance minus principal.

Why is most of my early payment interest?

Interest is charged on the balance, and the balance is highest at the start. As you repay principal, the balance falls, so interest falls and more of each payment goes to principal.

Do all loans have an amortization schedule?

Reducing balance loans with equal installments do. Flat rate loans have a schedule too, but the interest portion is the same each period. Interest-only loans have no principal repayment until the end.