Calculate the amount required to pay a loan in a certain amount of time or vice versa using this amortization calculator.

#### What is amortization?

Amortization is the process of paying off a loan through fixed payments. These payments include both the interest and the principal wrapped into one recurring payment. Amortization is often associated with mortgages, car loans, student loans, and other types of installment debt.

#### Principal

Principal is the initial amount of money owed when a loan is opened, as opposed to the interest which the loan accrues over time. If your house is priced at $150,000, you may end up paying $250,000 over the course of a loan, but the principal remains to be $150,000.

#### Interest Rate (APR)

An Annual Percentage Rate (APR) is the interest rate multiplied by the number of compounding periods per year. For example, if you have 2% monthly interest, your APR would be 2 * 12 = 24%. Learn more about interest rates from my post on the basics of finance. APR, unlike Annual Percentage Yield (APY), is not adjusted for interest earned on interest due to a compounding period shorter than a year. If you are ever confused about the difference between APR and APY, Ally Bank has a great article that clears it up.

#### Fixed Term vs. Fixed Payment

The fixed term setting answers the question “How much would I have to pay?” whereas the fixed payment setting asks “How much time would it take if I paid a certain amount?” If you want to pay more than the minimum on a loan, try the fixed payment option to see how it affects interest and time to loan completion.

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