A loan amortization schedule is a table that shows a loan repayment process over a period of time. The table helps you break down periodic payments into principal (reduces the loan amount over time) and interest (cost of borrowing) until the loan is fully paid off. Additionally, the schedule will show you how much you owe at any given time, how payments are allocated and how interest increases over time.
In this article, we have explained the loan amortization schedule template in detail including its purpose, key components, and how to best use it to give you more knowledge on the topic.
Understanding the Loan Amortization Schedule Template
A loan amortization schedule is a table that defines a loan repayment plan. It is often used for loans that have a fixed term such as mortgages, student loans, etc. A loan amortization template is what will help you manage and track repayments by:
- Showing you the payment amounts and when they are due
- Helping you monitor your loan balance over time
- Showing your future obligations which helps you budget better
- Calculating interest which gives transparency on how much interest you will pay throughout the loan period
- Helping you make an informed decision by comparing loan options
- Helping in forecasting future payments which helps in budgeting
- Showing how much you pay towards principal versus interest
- Showing you where you need to make adjustments and how extra income can reduce your debt quicker.
When and why you need this template
| When | Why |
|---|---|
| When tracking payments, balances and interests | It helps you track loan payments |
| When budgeting for future repayments | It shows how each payment you make reduces the principal and how much interest you pay |
| When taking a loan | Helps you compare different options to decide on the best repayment plan |
| When you plan to refinance a current loan | It helps you manage your cash flow by forecasting future payments |
Key Components of a Loan Amortization Template
A loan amortization schedule template has components that make it structured and organized to help you organize, manage, and track your payments efficiently.
The components are:
Loan amount
This is the amount borrowed from a lender. It acts as the starting point for calculating interest and principal.
Interest rate
This is the annual percentage a lender charges on the loan amount. It determines how much interest you will pay on each periodic payment.
Monthly payment breakdown
The payments are divided into two parts i.e. principal and interest. The principal reduces the loan amount over time while the interest is the cost of borrowing which is a percentage of the balance.
Remaining balance
This is the remaining balance to be paid after each payment. The balance decreases as you continue to make principal payments over time.
Payment schedule
The payment schedule shows you when each payment is due. This will help you stay on track with repayments and understand the loan term.
EXAMPLE
Loan =600,000
Interest rate (r) = 10%
Payment period = 10 years
Formula for determining installment payments:
A=P / 1-(1+interest rate) ^payment period / r
| Period | Installments | Interest | Principal | Balance |
|---|---|---|---|---|
| 0 | – | – | – | 600,000 |
| 1 | 189,282 | 60,000 | 129,282 | 470,718 |
| 2 | 189,282 | 47,071.8 | 142,210.2 | 328,507.8 |
| 3 | 189,282 | 32,850.78 | 156,431.22 | 172,076.58 |
| 4 | 189,282 | 17,207.66 | 172,074.34 | 2 |
- Principal = Installments – Interest
- Interest = 10 % of the remaining balance after deducting the principal
- Balance = Prior balance – next principal
Practical Use of a Loan Amortization Schedule Template
You can use the loan amortization schedule template efficiently by:
- Reviewing the template regularly to track the loan repayment progress
- Using it to forecast future repayment obligations to align them with your financial goals
- Entering the right details on the template i.e. principal payments, installments, interest, balance, and period for accuracy
- Budgeting for upcoming payments to avoid missing deadlines
- Managing your cash flow to ensure there are enough funds for repaying a loan
Related: 40 Free Payment Agreement Templates (Samples) – Word | PDF
Free Templates
There are a collection of free, editable and ready-to-use loan amortization schedule templates available on our platform that you can access. The templates will help you design a loan amortization schedule that will enable you to track your repayments, show due dates, and budget better which leads to timely loan repayments and better financial management.
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