What is amortization and how could it affect my auto loan?
- English
- Español
In an amortizing loan, a percentage of your monthly payment is applied to the principal and to the interest. At the beginning of your loan term, more of your payment is generally applied toward the interest rather than the principal.
The chart showing the amount of your payment that goes toward your principal and interest is called an amortization schedule. In an amortizing loan, the consumer pays a fixed monthly payment, but a greater percentage is applied to the interest early in the life of the loan while a greater percentage is applied to the principal toward the end.
Thus, the principal balance decreases slowly at first, then more quickly closer to the end of the loan term. The longer the loan term, the lower your monthly payments but the more you’ll pay in interest over the life of your loan.