Car Loan Amortization Explained (With the Formula)
The formula behind every row of the schedule — and why the first year costs more than you'd expect.
The short answer
Amortisation is the schedule that splits every car payment between interest and principal. The payment stays constant, but the split shifts every month: interest = balance × (rate ÷ 12), and the rest reduces principal. Because the balance falls each month, interest shrinks and principal grows. On a $30,000 loan at 6.39% over 60 months, the first payment is 27% interest and the last is 0.5% — and half of all interest is paid within the first 19 months.
- Your payment never changes; what it buys does. Early payments are interest-heavy, later ones principal-heavy.
- Each row needs only one calculation: interest = current balance × monthly rate.
- Interest is front-loaded. Half the total interest on a 60-month loan is paid by month 19.
- This is why early extra payments matter most — and why refinancing late saves little.
- Front-loading is arithmetic, not a penalty. You owe the most at the start, so you're charged the most.
The amortization formula
Building an amortisation schedule needs two formulas: one to find the fixed payment, and one repeated for each row.
Step 1 — the payment
Step 2 — each row of the schedule
Repeat step 2 sixty times and you have the schedule. There is no additional complexity — a spreadsheet with three columns reproduces exactly what a lender's system produces.
Because payments are rounded to the cent, the last row rarely lands on exactly zero. Lenders adjust the final payment by a few cents or a few dollars to close the balance precisely. If your schedule ends at $0.03 rather than $0.00, you have done it right.
What a real schedule looks like
Here is the shape of a real schedule — $30,000 at 6.39% over 60 months, payment $585.44, total interest $5,126.40.
| Month | Interest | Principal | Balance | % of payment that is interest |
|---|---|---|---|---|
| 1 | $159.75 | $425.69 | $29,574.31 | 27.3% |
| 12 | $134.14 | $451.30 | $24,739.42 | 22.9% |
| 24 | $104.44 | $481.00 | $19,132.68 | 17.8% |
| 36 | $72.79 | $512.65 | $13,156.97 | 12.4% |
| 48 | $39.06 | $546.38 | $6,788.04 | 6.7% |
| 60 | $3.10 | $582.34 | $0.00 | 0.5% |
Generate the complete schedule for your own loan, including sales tax, down payment and trade-in.
Build your scheduleWhy interest is front-loaded
The most consequential feature of amortisation is that interest is front-loaded. On our 60-month loan, half of the entire $5,126.40 interest bill is paid within the first 19 months — roughly the first third of the term.
This is not a fee structure or a trick. It follows directly from the formula: interest is charged on the balance, and the balance is largest at the beginning. You are charged the most when you owe the most.
Three practical consequences follow:
Early extra payments are worth far more than late ones
A dollar of principal removed in month 6 avoids interest for 54 remaining months. The same dollar in month 50 avoids it for 10. This is why acceleration strategies emphasise starting early — see how to pay off your car loan early.
Refinancing late rarely pays
If most of the interest is already behind you, a lower rate has little left to work on. Refinancing is strongest in the first half of the term — covered in should you refinance your car loan.
Slow early principal repayment is why cars go underwater
A 72-month loan repays only about 14% of its principal in year one, while a new car loses roughly 24% of its value over the same period according to U.S. Bureau of Labor Statistics data. The gap between those two rates is negative equity — the subject of the cluster's main guide.
How term length changes the schedule
Term length changes the schedule's shape more than most buyers expect. Longer terms lower the payment but slow principal repayment, so more of each payment stays interest for longer.
| Term | Monthly payment | Total interest | Total paid |
|---|---|---|---|
| 48 months | $709.93 | $4,076.52 | $34,076.52 |
| 60 months | $585.44 | $5,126.40 | $35,126.40 |
| 72 months | $502.73 | $6,196.43 | $36,196.43 |
Moving from 48 to 72 months cuts the payment by $207 but adds $2,120 in interest — and keeps you underwater considerably longer. Edmunds has linked the industry-wide drift toward longer terms directly to rising negative equity.
Compare terms side by side to see what a lower payment costs you in total interest.
Compare termsMethodology and sources
Every payment, interest and balance figure was computed from this site's auto loan amortization engine — the same code behind the linked calculators — and independently verified in Python before publication. The example uses Experian's published Q1 2026 average new-car rate of 6.39%.
Schedules assume a standard simple-interest amortising loan, which covers most U.S. auto financing. Precomputed-interest loans, found mainly in subprime and buy-here-pay-here lending, follow a different structure. Market averages are not quotes.
- 1Average Car Loan Interest Rates by Credit Score — Experian, July 2026
- 2Annual depreciation rates by automobile age — U.S. Bureau of Labor Statistics, Monthly Labor Review
- 3Auto Loans — consumer tools and guidance — Consumer Financial Protection Bureau
- 4Car Debt Grows Deeper as Loan Terms Stretch Wider (Q1 2026 insights) — Edmunds, April 2026
Frequently asked questions
Founder and developer of We Are Calculator. No lead selling, no lender rankings, no affiliate-pulled recommendations. Every guide pairs primary sources (IRS, CFPB, Federal Reserve, CRA) with the free calculators you can run yourself.
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