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Simple English definitions for legal terms
amortization schedule
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A quick definition of amortization schedule:
Amortization schedule: A plan that shows how much money you need to pay back each month for a loan. It includes both the amount of money you borrowed (called the principal) and the interest you owe. The schedule also shows how much of the loan you still owe after each payment is made.
A more thorough explanation:
An amortization schedule is a table that shows the periodic payments of interest and principal that are owed on a debt obligation. It is a loan schedule that displays the amount of principal and interest due at regular intervals over the loan term, as well as the remaining unpaid principal balance after each scheduled payment is made.
Let's say you take out a $10,000 loan with a 5% interest rate and a 5-year term. Your amortization schedule might look something like this:
| Payment Number | Payment Amount | Interest Paid | Principal Paid | Remaining Balance |
|---|---|---|---|---|
| 1 | $188.71 | $41.67 | $147.04 | $8,852.96 |
| 2 | $188.71 | $36.89 | $151.82 | $8,701.14 |
| 3 | $188.71 | $32.01 | $156.70 | $8,544.44 |
| 4 | $188.71 | $27.02 | $161.69 | $8,382.75 |
| 5 | $188.71 | $21.91 | $166.80 | $8,215.95 |
In this example, you would make five payments of $188.71 each. The first payment would consist of $41.67 in interest and $147.04 in principal. After that payment is made, you would have a remaining balance of $8,852.96. The second payment would consist of $36.89 in interest and $151.82 in principal, and so on.
The amortization schedule helps you understand how much of each payment goes towards interest and how much goes towards paying down the principal. It also shows you how much you still owe on the loan after each payment is made.