This downloadable student loan amortization table will make it easy to visualize your repayment schedule and how interest expenses factor into each payment.
What is Amortization?
Amortization is the systematic repayment of a debt, paying it down over time.
For borrowers, this typically means making fixed monthly payments, which consist of both interest and principal. Many types of consumer loans, including mortgages, car loans, and student loans, are amortized over a fixed term, during which borrowers pay the same amount each month.
While payments are fixed, the ratio of interest to principal will change over time. At the beginning of the repayment term, when the balance is highest, a greater portion of each payment will go toward paying the interest expense. This makes sense, since interest is calculated by multiplying the outstanding balance for the previous period by the periodic interest rate. As time goes on and the borrower pays down the balance a greater portion of each payment will go toward principal. To make sure this is clear, let’s look at an example.
Let’s say that you have a student loan for $40,000 and an interest rate of 6.5%, and you plan to stick to a 10 year repayment plan. Using our Basic Student Loan Calculator, you’d be able to quickly determine that you’d owe approximately $454 each month over the repayment term. But, as noted, the ratio of interest to principal will change over time.
Payment 1: $39,762.47 ($216.67 goes to interest, and $237.53 goes to principal)
Payment 2: $39,523.66 ($215.38 goes to interest, and $238.81 goes to principal)
Payment 24: $33,659.37 ($183.79 goes to interest, and $270.41 goes to principal)
Payment 25: $33,387.50 ($182.32 goes to interest, and $271.87 goes to principal)
Payment 105: Balance = $6,526.50 ($37.61 goes to interest, and $416.58 goes to principal)
Payment 106: Balance = $6,107.66 ($35.35 goes to interest, and $418.84 goes to principal)
The Pros and Cons of Amortization
On the one hand, amortization makes it easy for borrowers to understand their repayment obligations. That is, an amortized loan requires a fixed payment over a fixed term, making it easy for borrowers to decide whether they can afford to take on new debt.
However, what’s not apparent to many borrowers is how interest expenses impact the amount they will pay over the life of the loan. An amortization table makes it easy to visualize the repayment schedule, and how interest expenses factor into each payment.
What Does an Amortization Table Show?
The calculations of an amortized loan are best displayed in an amortization table.
Each period (e.g., month) is displayed as a single row in the table. For each period, the table shows the total monthly payment, the amount paid to interest, and the amount paid to principal as well as the outstanding balance. The outstanding balance at the end of one period is used to calculate the interest expense for the next period.
How to Use this Excel-based Student Loan Amortization Table
This Excel-based amortization schedule will help you determine the following:
- The amount you’ll owe every month on your student loans
- How much of each payment will go toward interest and principal
- How a lower interest rate will change your payment
- The impact of making extra payments at any time during your repayment period