1. What is Principal vs Interest?

The Principal vs Interest Calculator breaks down each loan payment into the portion that goes toward paying down the principal (the original loan amount) and the portion that covers interest charges.

2. How Does the Calculator Work?

The calculator uses these formulas:

Where:

• Outstanding Balance — Remaining principal at start of month ($)
• R — Monthly interest rate (APR / 12, as a decimal)
• D — Monthly payment amount ($)

Explanation: Early in a loan, most of each payment goes toward interest. As the balance decreases, more of each payment is applied to principal.

3. Importance of Payment Breakdown

Details: Understanding your payment breakdown helps you see how much you're actually paying down debt versus paying interest charges. This knowledge can motivate extra principal payments to save on interest.

4. Using the Calculator

Tips: Enter your current loan balance, annual interest rate (APR), and monthly payment amount. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why does interest decrease over time?
A: Interest is calculated on the outstanding balance, which decreases as you make payments, resulting in less interest each month.

Q2: How can I pay less interest overall?
A: Make extra principal payments to reduce your balance faster, which reduces total interest paid over the life of the loan.

Q3: What if my payment doesn't cover all the interest?
A: If your payment is less than the interest due, your balance will increase (negative amortization), which is common with some adjustable-rate loans.

Q4: Does this work for all loan types?
A: This calculation applies to standard amortizing loans (mortgages, auto loans, personal loans). Credit cards and interest-only loans work differently.

Q5: How accurate is this calculator?
A: It provides a good estimate for fixed-rate loans. For variable-rate loans, results will change as rates adjust.