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Total Interest
$91,548.90
Total Payment
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Amortization Schedule
| Payment # | Payment | Principal | Interest | Balance |
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Understanding Loan Types
Amortized Loans
An amortized loan is a type of loan with scheduled, periodic payments that are applied to both the principal and interest. Each payment is divided into two parts: one portion pays the interest charges for the period, while the other portion goes toward reducing the principal balance. Common examples include:
- Mortgages: Used to finance home purchases, typically spanning 15-30 years
- Auto Loans: Used for vehicle purchases, usually lasting 3-7 years
- Personal Loans: General-purpose loans with terms typically ranging from 1-5 years
With amortized loans, early payments consist primarily of interest, while later payments apply more toward the principal. This is why making extra payments can significantly reduce the total interest paid over the life of the loan.
Deferred Payment Loans
Deferred payment loans allow borrowers to postpone payments for a specified period. During the deferment period, interest may still accrue depending on the loan terms. Common examples include:
- Student Loans: Payments often deferred while in school
- Construction Loans: Payments deferred until project completion
- Business Loans: May offer initial payment deferment periods
Understanding how interest accrues during deferment is crucial, as it can significantly impact the total amount owed when payments begin.
Bonds
Bonds are debt instruments where investors lend money to an entity (usually a corporation or government) in exchange for periodic interest payments and the return of principal at maturity. Key features include:
- Coupon Rate: The fixed interest rate paid to bondholders
- Maturity Date: When the principal amount is repaid
- Face Value: The principal amount to be repaid at maturity
Bond calculations often involve determining yield to maturity, current yield, and price based on market interest rates.
Key Financial Terms
Principal
The original amount borrowed or invested. This is the base amount upon which interest is calculated. For loans, your monthly payments reduce the principal over time.
Interest Rate
The percentage charged by lenders for borrowing money, expressed as an annual rate (APR). The rate can be fixed (stays the same) or variable (changes with market conditions).
Compound Frequency
How often interest is calculated and added to the principal. More frequent compounding results in higher effective interest rates and total interest paid.
Loan Term
The duration of the loan, typically expressed in months or years. Longer terms usually mean lower monthly payments but higher total interest paid.
Financial Tips
Reducing Total Interest Paid
- Make extra payments when possible
- Choose shorter loan terms if affordable
- Shop around for lower interest rates
- Consider refinancing when rates drop
- Maintain a good credit score
Loan Basics
Interest Rate
The percentage charged by lenders for borrowing money, usually expressed as an annual percentage rate (APR).
Compound Frequency
How often interest is calculated and added to the principal. More frequent compounding results in higher effective interest rates.
Loan Term
The duration of the loan, typically expressed in months or years. Longer terms mean lower monthly payments but more total interest paid.