Amortization Calculator

What is Amortization Calculator?

Amortization is a financial term that can have two main meanings, depending on the context. In personal finance and lending, it refers to the gradual repayment of a loan over time through regular payments that cover both the principal and the interest. In business accounting, amortization means allocating the cost of a long-term asset—especially intangible assets—over its useful life.

Both forms of amortization involve breaking down a large cost into smaller, manageable portions, but the applications are different. In lending, it’s about repaying debt systematically. In accounting, it’s about spreading an expense across multiple periods to better match revenue and costs.

Amortization in Loan Repayment

When you take out a loan—whether it’s a mortgage, an auto loan, or a personal loan—you’ll typically repay it through fixed monthly installments. Each payment includes two parts:

• Interest – the cost of borrowing money, calculated on the outstanding loan balance.

• Principal – the portion that directly reduces the amount you owe.

In the early stages of repayment, a larger share of each payment goes toward interest, since the principal balance is still high. As time goes on, the principal decreases, so the interest portion shrinks and the principal portion grows.

This process can be clearly seen in an amortization schedule—a detailed table that breaks down every payment, showing how much goes toward interest, how much toward principal, and how much balance remains.

Not all loans are amortized. For example:

• Credit cards are revolving credit, meaning balances can roll over month to month with varying payments.

• Interest-only loans require only interest payments for a certain period before principal payments begin.

• Balloon loans have smaller periodic payments followed by one large final payment of the principal.

Amortization Schedules

An amortization schedule—also called an amortization table—outlines every payment over the life of a loan. For each period, it shows:

• The amount paid toward interest.

• The amount paid toward principal.

• The cumulative principal paid to date.

• The remaining loan balance after each payment.

These schedules are especially useful for long-term loans such as mortgages because they reveal how much interest you will pay over the life of the loan and how much you can save if you make additional principal payments.

Most amortization schedules are based on fixed-rate loans, where the interest rate remains constant. Adjustable-rate loans or lines of credit require a different calculation method, as the interest portion can change over time.

Amortization in Business Accounting

In accounting, amortization refers to allocating the cost of intangible assets—such as patents, trademarks, copyrights, and goodwill—over their estimated useful lives.

This is similar to depreciation, which is used for tangible assets like machinery or buildings, but amortization is applied to intangible property. The idea is to spread the expense across multiple years so that it aligns with the revenue the asset helps generate.

Under U.S. tax law (Section 197 of the Internal Revenue Code), many intangible assets can be amortized over a set number of years, usually 15. These assets can include:

• Goodwill

• Customer lists and relationships

• Patents, copyrights, and trade secrets

• Trademarks and brand names

• Licenses and permits

• Franchise rights

• Non-compete agreements

Some intangible assets with indefinite lifespans—such as self-created goodwill—cannot be amortized for tax purposes.

Amortizing Startup Costs

In the United States, certain startup costs for a new business can also be amortized. These are expenses incurred while investigating the potential of starting a business or preparing it to become active. Examples include market research, feasibility studies, advertising before launch, and employee training.

The IRS allows a portion of these startup costs to be deducted in the first year, with the remainder spread over a set amortization period. This helps small businesses avoid the financial strain of writing off all startup costs in a single year.

Why Amortization Matters

Understanding amortization is important for both individuals and businesses:

• For borrowers, it reveals how debt repayment works and how making extra payments can reduce interest costs.

• For businesses, it ensures accurate financial reporting and compliance with accounting standards.

By using tools like an Amortization Calculator, you can visualize the repayment process, plan for early payoff, and make informed financial decisions. Whether you’re managing personal debt or business assets, knowing how amortization works can save you money and improve your long-term financial strategy.

Related Calculators:
Mortgage Calculator, Loan Calculator

External Resources:
Amortization Calculator on Calculator.net