A finance charge expressed as an annual rate.

## Faq

Annual Percentage RateThe term annuity is used in finance theory to refer to any terminating stream of fixed payments over a specified period of time.

Fees due at the end of a loan to close the contract.

The sum of all interest payments made on a loan over a certain time period.

The closer an early payment is to the beginning of the loan, the greater reduction it will have on the total cost.

The loan amortization calculator uses an annuity formula to show monthly payments, and compare loan interest with different durations and APR.

What is Loan Amortization?Amortization refers to scheduled payments made towards paying back a loan. Each incremental payment includes a portion of the loan amount, plus an amount of interest.

Interest and PaymentsWhen loan payments are calculated, it is not as straight forward as (APR X principle X years). That way would cost much less, the actual formula includes compound interest. This is basically the principle X APR + principle, for the first year, and then repeat for every year of the loan.

The net effect is that each successive year calculates interest including a percentage of the previous year (APR X principle). The payments each month don't actually reduce the amount of the loan in the respect of how the interest is calculated.