How loan amortisation works: reading the payment and interest split

If your loan balance is falling more slowly than the payments suggest, look at the interest column on the statement. Part of each payment covers interest; only the principal part reduces what you owe. An amortisation schedule shows that split and the remaining balance after every payment.

This guide uses a fixed-rate loan with equal monthly payments. Other arrangements, including interest-only periods and changing rates, need their own schedules. The examples explain costs rather than recommend a particular loan.

Read one row at a time

For this type of loan, each month follows the same steps:

1. Calculate interest on the opening balance.
2. Subtract that interest from the payment to find the principal repaid.
3. Subtract the principal repaid from the balance.

As the balance falls, the interest charge falls. With the payment held steady, more of it goes towards principal. Early payments are not always mostly interest: that depends on the rate and the length of the loan.

The first two payments on a €200,000 loan

Assume a nominal annual rate of 4%, divided into twelve monthly periods, over 25 years: 300 payments. There are no fees or extra payments.

The calculated monthly payment is €1,055.67, rounded for display.

Payment	Interest	Principal repaid	Balance after payment
1	€666.67	€389.01	€199,610.99
2	€665.37	€390.30	€199,220.69

The first interest charge is €200,000 × 0.04 ÷ 12. For the next row, use the new balance rather than €200,000 again. The payment is unchanged, but the second month’s interest is about €1.30 lower.

These rows use unrounded values internally, so separately rounded columns can differ by a cent when added. In this model, principal first exceeds interest at payment 93, during year eight. Total interest over the full 25 years is about €116,702.

Checking the payment formula

The payment needs to cover interest and repay the balance by the end of the agreed term. For a fixed monthly rate, the formula is:

payment = loan amount × r / (1 − (1 + r)^−n)

Here, r is the monthly rate as a decimal and n is the number of monthly payments. For the example, use r = 0.04 / 12 and n = 300.

Do not put 4 or 0.04 directly into the monthly-rate slot. If the quoted annual rate is an effective rate rather than a nominal rate divided monthly, the conversion is different. At 0% interest, no interest formula is needed: divide the loan amount by the payment count.

Compare the rate while keeping the term fixed

For €200,000 over 25 years, using the same monthly convention:

Nominal annual rate	Monthly payment	Total interest
3%	€948.42	€84,527
4%	€1,055.67	€116,702
5%	€1,169.18	€150,754

Moving from 4% to 5% adds about €113.51 to each regular payment and €34,052 to total interest. That is a one-percentage-point rate change, not a 1% relative increase in the rate.

A longer term lowers the payment but adds interest

At 4%, extending the same €200,000 loan from 25 to 30 years reduces the monthly payment from €1,055.67 to €954.83. Total interest rises from about €116,702 to €143,739.

The lower payment leaves principal outstanding for longer. To compare offers, keep both the monthly cost and the full-term cost visible; either number on its own leaves out part of the picture.

Extra principal payments work in the other direction if the lender keeps the normal payment unchanged: a lower balance generates less future interest and the loan finishes sooner. Charges and lender rules can alter that comparison.

Use the local tool with its assumptions in view

The loan calculator divides the entered yearly interest rate by twelve and models monthly payments. It displays the schedule and offers a CSV download. The selected country sets currency and number formatting, so check that the displayed balance matches the amount you meant to enter.

Country selection does not model that country’s lending rules. Daily interest accrual, payment dates, insurance, taxes and changing rates can make a real statement differ from this monthly model.

The current fee-based Estimated APR has calculation limitations, including treating a reduced final instalment as a full payment and an unreliable rate solver in some cases. It should not replace the lender’s APR/APRC disclosure. The schedule’s “Total paid” also excludes the upfront fee entered separately; include that fee when comparing total cash costs.

Last reviewed 2 October 2026.