Brief Guide to Know More about Loan Amortization Schedule
A loan amortization schedule is a template that contains a table of loan payment dates, along with the principal amount and the interest amount for each payment. It can be used as a reminder until the borrower has paid off the loan or until the end of the loan’s term. The periodic payment show column as the summed-up amount of principal and interest rates. At the end of the template, the grand total of principal and interest payment is shown for the entire term of the loan.
Better Understanding of How the Amortized Loans Schedule Work
To amortize a loan, meaning that dividing the payment with a fixed amount over a period of time. The borrower has to pay the principal and interest with different ratios each month, but the total payment would remain the same for each period during the entire term. It is actually an accounting term that also used in other balances or calculations such as the intangible asset calculation, but the most common usage is for monthly loan payment.
The main reason why it is a good idea to use a loan amortization schedule beside to remind you to fulfill the payment is to keep track of your balance. Typically, the interest cost will be the highest during the beginning of term and decreasing with each period, thus it can be hard to check your balance and principal debt progress especially if you’re committed to a long term loan.
The Difference between Amortized Loans and Other Loan Types
To make sure that you’re taking out the correct type of loan amortization schedule, you need to know the difference between each kind of loan first. There are three types of loan available that you can read about in the following.
- Amortized loans
This type of loan usually paid on a certain period of time, with an equal payment amount for each month or period. Even though the total amount that’s paid off per period is the same, but the principal amount can change if the borrower chose to pay more in order to reduce the principal loan faster.
- Balloon loans
The balloon loan type commonly paid off in a shorter time than the other one, and not the entire principal amount is amortized but only a portion of it. At the final repayment, which is at the end of the loan term, the remaining balance usually is doubled from the prior payment.
- Credit cards and revolving debt
Unlike two types of the loan above, the credit cards and revolving debt don’t have a fixed or set amount of payments. The borrower could choose how much they want to repay each month accordingly and may borrow repeatedly using the same card.
Conclusion on Using the Amortized Loans Schedule
To get the suitable loan amortization schedule template, you have to find one that designed in a set amount of time as your payment period. The payment period is usually divided by the month. So, for instance, if you have a 25-year mortgage, you have to pay 300 monthly payments. The monthly payment amount won’t change, but the debt ratio between the principal and interest rate may vary over the months.