An amortization schedule is a table that displays the breakdown of principal and interest payments over the life of a loan. It shows how each payment is allocated between reducing the loan balance (principal) and paying interest charges.
The amortization schedule is calculated based on the loan amount, interest rate, and loan term. Using these values, the monthly payment is determined, and the schedule is generated by tracking the changing loan balance, interest payments, and principal payments over time.
An amortization schedule is important because it helps borrowers understand the cost of borrowing and the progress of their loan repayment. It shows how each payment contributes to reducing the loan balance and the total interest paid over time. It also allows borrowers to see the impact of making extra payments or adjusting the loan term.