While auto loan calculators show you a payment that remains the same throughout the life of the loan, the amount you pay toward interest typically changes each month.
The amount of interest you pay is based on the loan balance on your payment due date. If you pay more than the interest — and your car loan almost certainly requires that you do — the remainder is applied to your principal.
Thus, each month, a little less goes toward interest and a little more toward principal. An auto loan amortization schedule allows you to see that shift from month to month.
For example, if you borrowed $20,000 for 60 months and your APR was 5%, your payment would be $377.42. If you pay that amount the first $83 goes to interest and the principal is reduced by $294. Then the next month, the amount you pay interest on would be $19,706, not $20,000. The amortization calculator shows your balance and interest paid at any time during the course of your loan.
Does this number ever matter? Yes, if you:
-
Wonder whether you are upside-down on your loan (owe more than the car is worth).
-
Are curious about how much equity you have for trade purposes.
-
Are trying to decide where to spend your extra money most effectively.
