Understanding loans
Amortisation, in plain English.
Equal payments, unequal contents — most of the early payment is interest.
What "amortising" means.
An amortising loan has a fixed monthly payment that's calculated to clear the principal exactly when the term ends. The payment stays constant; what shifts is the balance between interest and principal inside it. The first months are mostly interest. The last months are mostly principal. The total is the same.
EMI = P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1)
The front-loaded interest trap.
On a 20-year loan at 6.5%, your first month's payment is about 75% interest. By year ten, you're roughly half-and- half. By year nineteen, almost all of it is principal. This isn't a bank trick — it's mathematically how amortisation works. But it does mean that paying off a loan early saves a disproportionate amount of interest, especially in the first few years.
APR vs nominal rate.
The nominal rate is the headline percentage. The APR (Annual Percentage Rate) folds in fees and origination costs and recomputes an effective rate. A 6% nominal loan with 1% in upfront fees can have an APR closer to 6.3%. APR is the honest number for comparing offers.
Why the term matters more than the rate.
Doubling the term doesn't double the interest — it can more than triple it. A $250,000 loan at 6.5% over 15 years pays about $142k in interest. The same loan over 30 years pays about $319k. The longer you carry a balance, the more interest compounds against you, even with the same rate.
What this calculator doesn't include.
Real loans have fees — origination, prepayment penalties, insurance, late charges. They may have variable rates that reset, balloon payments at the end, or escrow accounts. The calculator above assumes a vanilla amortising loan with equal monthly payments and no fees. For a real quote, the lender's APR disclosure is the binding number.