The loan amortization is the kind of loan that you will pay in installment. Usually, this type of loan is applied for people that wanted to purchase a property (a new house or apartment), purchase a vehicle (car or motorbikes), and many more. This term has been used a lot in accounting firms and finance industries too. Although, in accounting terms, amortization is used to reduce the value of intangible assets. This is an important aspect that you need to know especially with the concept of the installment that you have to pay every day when you are taking a loan amortization. This way, you will be able to find out how much you have to set aside each month to pay the installment.
How does loan amortization work? When you are going to purchase a new vehicle, you will get some plans from the car dealer for different installments that you can apply for. Most likely, you will see there are ranges of different months (6 months, 12 months, 18 months, 24 months, and more) for the installment. It will also state the amount of interest that you have to pay. Usually, they will state the interest percentage for 1 whole year and it will be divided by 12 for each month of that year. If you have never calculated a loan amortization before, you can use a template from Microsoft Excel to help you with it. All you have to do is make sure that the detail that you are going to enter is correct.
Choose a template that you think will be suitable for your preferences and input the numbers in the available fields. The template will be able to calculate your installments for you too. It will include the date of each month where you have to pay your installment, the total sum of the payment, the ratio of interest for the loan, the amount of interest for each month, payment left to be done, etc. These fields can easily be modified depending on your needs as well. Although, you need to becareful in which fields you edit because of the formula that is already set within them.
Some might also want to know how a loan amortization is calculated. Knowing how the interest is calculated is important so that you know how much interest you have to pay, etc. It will count the loan that you need to pay periodically. These days, people know it more as installments. With some cash loan installments, you even have to pay weekly or fortnightly. So the installment for the loan amortization is not only for monthly installments. You need to becareful when you are going to borrow cash with loan installments as a payment method. Some people only focus on the amount that they have to pay for each month but they completely ignore the interest rate that goes with it.
Depending on the type of loan that you want to take, the payment also ranges from 1 year up to 5 years. For house purchases though, it is very common to have a loan amortization ranging from 10 years up to 30 years. At the starting point of the loan, the interest rate will be the highest as the amount is still at the most. Along with times, depending on the contract that has been agreed to at the beginning, the interest rate could also go down with the total amount that has decreased too.