How to Read an Amortization Table

An amortization table might look like a complex spreadsheet, but it’s actually a straightforward guide that shows you exactly where your money goes with every loan payment. Understanding this schedule is the key to seeing the true cost of your loan over time and finding ways to pay it off faster. This article breaks down how to read an amortization table, column by column, so you can turn vague loan details into clear, actionable information.

What is an Amortization Table?

An amortization table, or amortization schedule, is a formal list that details each periodic payment on a loan. It clearly separates the amount of each payment that goes toward interest from the amount that goes toward the principal balance. The word “amortization” simply refers to the process of spreading out a loan into a series of fixed payments over time.

Think of it as a detailed receipt for the entire life of your loan. While you may only focus on the fixed monthly payment amount, the amortization table reveals what’s happening behind the scenes. Initially, a large portion of your payment is consumed by interest. As you continue to make payments, this slowly shifts, with more of your money going toward reducing the actual loan principal. This schedule is the only way to visualize that change and understand your progress in becoming debt-free.

Without it, you are only seeing a small piece of the puzzle. With it, you gain a complete picture of your debt, which allows you to make informed decisions about your finances, whether it's a home mortgage, a car loan, or a business loan.

Deconstructing the Amortization Table: A Column-by-Column Guide

The best way to understand an amortization table is to walk through a concrete example. Let's imagine a business takes out a $20,000 equipment loan for a term of 5 years (60 months) at an annual interest rate of 7%. This would result in a fixed monthly payment of $396.02.

Here’s how a typical amortization table would break down this loan, line by line.

Column 1: Payment Period

This is the simplest column. It just shows which payment you're on. It will start at 1 and go all the way to 60 for our 5-year loan example. This helps you track how far along you are in the repayment journey.

Column 2: Beginning Balance

This shows the total amount of principal you owe at the start of the period before you make your payment. For the very first payment (Period 1), the beginning balance is the entire loan amount—in our case, $20,000.

Column 3: Payment Amount

This column displays the fixed payment amount due each period. For our example, this will be $396.02 for every period from 1 to 60. This is the number you see on your billing statement, but it doesn't tell the whole story on its own.

Column 4: Interest Paid

This is the most revealing column, as it shows precisely how much of your payment is going to the lender as a fee for borrowing the money. The interest is calculated on the beginning balance for that period. The formula works like this:

(Beginning Balance x (Annual Interest Rate / 12)) = Interest for the Month

Let's calculate it for the first payment:

• ($20,000 x (0.07 / 12)) = $116.67

So, in the first month, a full $116.67 of the $396.02 payment is interest. This demonstrates why it feels like you're making little progress on a loan early on.

Column 5: Principal Paid

After the interest is paid, the remainder of your payment goes toward reducing your loan balance. The calculation is simple:

Payment Amount – Interest Paid = Principal Paid

Using our first payment example:

• $396.02 – $116.67 = $279.35

This is the amount that actually reduces what you owe. In the first month, only $279.35 of your $396.02 payment chips away at the $20,000 debt.

Column 6: Ending Balance

Finally, the ending balance shows your new, lower principal balance after your payment has been applied. It's calculated by subtracting the principal paid from the beginning balance:

Beginning Balance – Principal Paid = Ending Balance

Applying this to our first month:

• $20,000 – $279.35 = $19,720.65

This ending balance ($19,720.65) then becomes the beginning balance for the next period (Payment 2), and the whole calculation process starts over. As you can see, because the balance is now lower, the interest for the next payment will also be slightly lower, meaning a slightly larger portion of your second payment will go to the principal.

Seeing the Shift Over Time

Let's look at the first three payments for our example loan to see the pattern in action:

• Payment 1: Beginning Balance: $20,000. Interest: $116.67. Principal: $279.35. Ending Balance: $19,720.65.
• Payment 2: Beginning Balance: $19,720.65. Interest: $115.04. Principal: $280.98. Ending Balance: $19,439.67.
• Payment 3: Beginning Balance: $19,439.67. Interest: $113.40. Principal: $282.62. Ending Balance: $19,157.05.

Notice how with each payment, the interest portion slowly decreases while the principal portion slowly increases. This "snowball" effect accelerates over the life of the loan. By the final year, almost your entire payment will be going toward the principal.

From Simple Numbers to Strategic Decisions

Understanding an amortization schedule is not just an academic exercise. It's a tool that empowers you to control your debt. Accountants and finance teams refer to these schedules to accurately book liabilities and expenses, as well as to develop financial strategies.

1. Making Extra Payments

When you make an extra payment, that money typically goes directly toward reducing the principal balance (it's wise to confirm this with your lender). Looking at the table, you can see how powerful this is. An extra $500 payment in month 4 would instantly lower your principal, which means the interest calculation for month 5 would be based on a smaller balance. This not only reduces the total interest you pay over the life of the loan but can also shave months or even years off your repayment term.

2. Evaluating the Total Cost of a Loan

An amortization schedule allows you to see the grand total of all interest payments. In our $20,000 loan example, the total payments would be ($396.02 x 60) = $23,761.20. That means the total interest paid (the true cost of borrowing) is $3,761.20. When comparing loan offers, looking at the total interest paid provides a much better comparison point than just the monthly payment or APR.

3. Tax and Accounting Implications for Businesses

For a business, this breakdown is fundamental for accurate bookkeeping. The principal repayment is not a business expense; it’s an exchange of one asset (cash) for a reduction in a liability (loan payable). However, the interest paid is a business expense and is typically tax-deductible. The amortization table gives you the exact figures needed to record this correctly in your accounting software, whether you use a tool like QuickBooks or Xero. This ensures your financial statements are accurate and that you are claiming the correct deductions on your tax return.

How to Get an Amortization Table

Most lenders will provide you with an amortization schedule when you take out a loan, but if you don't have one, it's easy to create or find one.

• Ask Your Lender: Your bank or financial institution can provide an amortization schedule for any active loan you have.
• Use a Spreadsheet: Software like Microsoft Excel or Google Sheets has built-in financial formulas (like the PMT function) that make it simple to build your own amortization table from scratch. This gives you complete control to model scenarios, such as extra payments.
• Online Calculators: There are dozens of free, high-quality online amortization calculators. They are quick, easy to use, and perfect for getting an instant schedule for any personal or business loan. They're also great for modeling potential future loans.
• Loan Features in Accounting Software: Many business accounting platforms, including Sage, have loan manager tools to help you track business loans, post entries, and manage the amortization component automatically within your chart of accounts.

Final Thoughts

The amortization table demystifies your debt by providing a transparent, payment-by-payment account of how your principal balance and interest obligations are handled over time. Reading it equips you with the knowledge to manage your loans proactively, whether that means making extra payments, evaluating refinancing options, or ensuring accurate bookkeeping.

Properly accounting for loan interest and principal is a great example of where financial details directly influence tax filings. When you face complex questions around the tax implications of different financing structures, interest deductibility across various entity types, or multi-state tax treatments for business debt, getting an accurate answer is essential. Our AI tax research assistant, Feather AI, was created to give accounting and tax professionals instant, citation-backed answers directly from authoritative sources like the IRC and state tax codes, freeing you up to focus on client strategy.