Amortization is the schedule that allocates each loan payment between interest and principal until the balance reaches zero. On a fixed-rate amortizing loan your payment is constant, but the split between interest and principal shifts dramatically over the life of the loan.
How the split changes over time
Early in the loan, most of each payment is interest because interest accrues on the (still-large) remaining principal. As principal drops, the interest portion shrinks and the principal portion grows. The last payment is almost entirely principal.
Example: a $20,000 personal loan at 10% APR over 60 months has a ~$425 monthly payment. In month 1, about $167 is interest. In month 60, less than $4 is interest.
Why extra payments help so much
Extra payments applied directly to principal shorten the schedule and eliminate every future interest charge that would have accrued on that principal. Even one extra payment per year on a 30-year mortgage can cut years off the loan and tens of thousands of dollars in interest.
How to read an amortization table
Standard columns: payment number, payment amount, interest portion, principal portion, remaining balance. Every major lender provides an amortization schedule on request, and online amortization calculators (including ours) let you model extra payments.
Frequently asked questions
Can I tell my lender to apply extra payments to principal?
Yes — and you usually have to. Many lenders default to applying extra funds to the next month's payment unless you instruct them to apply to principal. Specify 'apply to principal' on every extra payment.