Calculate The Following Payment and Complete The Loan Amortization Table
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Reviewed by Calculator Editorial Team
Calculating loan payments and completing an amortization table are essential financial skills. This guide explains how to determine the monthly payment for a loan and how to create a detailed amortization schedule that shows how the loan balance decreases over time.
How to calculate the following payment
The "following payment" in a loan context typically refers to the next scheduled payment amount. To calculate this, you need to know the loan's principal amount, interest rate, and remaining term. The formula for calculating the monthly payment is:
Monthly Payment Formula
M = P [ r(1 + r)n ] / [ (1 + r)n - 1 ]
Where:
- M = monthly payment
- P = principal loan amount
- r = monthly interest rate (annual rate divided by 12)
- n = number of payments (loan term in months)
This formula uses the standard amortization method where each payment consists of both principal and interest components. The payment amount remains constant throughout the loan term.
Note
For loans with variable rates, the following payment may change based on the new interest rate. Always check the current rate before calculating the next payment.
Completing the loan amortization table
An amortization table is a detailed schedule that shows how each payment applies to the principal and interest portions of the loan. Here's how to complete one:
- Start with the loan's principal amount and interest rate.
- Calculate the monthly payment using the formula above.
- For each month, calculate the interest portion by multiplying the remaining balance by the monthly interest rate.
- Subtract the interest from the monthly payment to determine the principal portion.
- Subtract the principal portion from the remaining balance to get the new balance.
- Repeat steps 3-5 for each month until the balance reaches zero.
Here's an example of what an amortization table might look like:
| Payment # | Payment Amount | Principal | Interest | Remaining Balance |
|---|---|---|---|---|
| 1 | $1,200.00 | $800.00 | $400.00 | $19,200.00 |
| 2 | $1,200.00 | $820.00 | $380.00 | $18,380.00 |
| 3 | $1,200.00 | $840.00 | $360.00 | $17,540.00 |
The table shows how each payment reduces the loan balance while paying off both principal and interest. The interest portion decreases over time as the principal balance decreases.
Worked example
Let's calculate the monthly payment and create a partial amortization table for a $20,000 loan at 6% annual interest for 5 years (60 months).
Example Calculation
Monthly interest rate = 6% ÷ 12 = 0.5% = 0.005
Monthly payment = $20,000 [ 0.005(1 + 0.005)60 ] / [ (1 + 0.005)60 - 1 ]
Calculated payment ≈ $427.26
Here's the first three months of the amortization table:
| Month | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| 1 | $427.26 | $397.26 | $30.00 | $19,602.74 |
| 2 | $427.26 | $401.46 | $25.80 | $19,198.28 |
| 3 | $427.26 | $405.66 | $21.60 | $18,789.62 |
This example shows how the interest portion decreases while the principal portion increases over time as the loan balance decreases.
Frequently asked questions
- What is the difference between the following payment and the next payment?
- The "following payment" refers to the next scheduled payment amount based on the current loan terms. The "next payment" might refer to the immediately upcoming payment, which could be the same as the following payment if the loan is current.
- How often should I update my amortization table?
- You should update your amortization table whenever there's a change in your loan terms, such as a rate adjustment, extra payments, or loan modifications. For current loans, updating quarterly is a good practice.
- Can I make extra payments without affecting my amortization schedule?
- Yes, making extra payments can reduce your loan term and total interest, but it will affect your amortization schedule. The interest portion will decrease more quickly, and the principal portion will increase.
- What happens if I miss a payment?
- Missing a payment can result in late fees, increased interest charges, and potential damage to your credit score. It may also trigger a prepayment penalty if your loan has one. Contact your lender immediately if you anticipate missing a payment.
- How can I verify my amortization table is accurate?
- You can verify your amortization table by comparing it to the official statement from your lender or by using a loan calculator that generates the same schedule. Always double-check the interest rate and remaining term.