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Understanding an Amortization Schedule vs. a Payment Schedule

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Let’s talk payment schedules and amortization schedules, which are an important part of the small business loan repayment process. These schedules help borrowers stay on track as they make regular payments toward paying off their loan balance.

A loan repayment consists of principal, interest and sometimes taxes and insurance. The principal represents the amount you borrow, and the interest is the cost to borrow that amount. Although both schedules ultimately serve as a repayment timeline, there are differences between the two.

What is an amortization schedule?

Amortization is an accounting term that refers to the cost of an asset or debt over time. An amortization schedule for loans is the data that shows your due dates for loan repayments and your debt reduction over the term of a loan.

The idea is that the amortization schedule adds more detail to the basic payment calendar, said Christopher Omueti, founder and president of BlendingCap LLC, an Atlanta-based commercial finance adviser firm. The amortization schedule breaks down payments into the amount that goes toward interest, and the amount that goes toward the principal.

For example, if your estimate to repay a 1-year short term business loan with a fixed rate is about $1,700 per month, that will be your payment for the term of the loan. The amount you pay toward interest and principal, however, will change

In the early years of your business loan, you’ll pay the most toward interest. But as time progresses, more of your payment will go toward the principal balance until you pay off the loan.

You can typically request an amortization schedule from your bank or lending institution, Omueti said. Or, you can use an online amortization schedule calculator to view what your money will be going toward most — principal or interest — over the years. Review this amortization schedule breakdown example below:

Loan Amortization Schedule

ABC Bank
Loan amount: $20,000
Annual interest rate: 3.350%
Loan period: 12 months

Month Payment Principal Interest paid Total interest Balance
1 $1,697.06 $1,641.23 $55.83 $55.83 $18,358.77
2 $1,697.06 $1,645.81 $51.25 $107.08 $16,712.96
3 $1,697.06 $1,650.41 $46.66 $153.74 $15,062.55
4 $1,697.06 $1,655.01 $42.05 $195.79 $13,407.53
5 $1,697.06 $1,659.63 $37.43 $233.22 $11,747.90
6 $1,697.06 $1,664.27 $32.80 $266.02 $10,083.63
7 $1,697.06 $1,668.91 $28.15 $294.17 $8,414.72
8 $1,697.06 $1673.57 $23.49 $317.66 $6,741.14
9 $1,697.06 $1,678.25 $18.82 $336.48 $5,062.90
10 $1,697.06 $1,682.93 $14.13 $350.61 $3,379.97
11 $1,697.06 $1,687.63 $9.44 $360.05 $1,692.34
12 $1,697.06 $1,692.34 $4.72 $364.77 0

Here are several terms you may see:

  • Payment number. This is the number of payments you’ll make throughout the term of your loan; the payment number starts with No. 1 and ends with the number of the last payment.
  • Payment date. This is your payment due date.
  • Beginning balance. This is the balance on your loan you still need to repay; it takes into to account your previous payment.
  • Scheduled payment. This represents the amount you’ll pay toward your loan each month.
  • Extra payments: This includes extra payments and your full total (usually doesn’t change).
  • Total payments: This includes your extra payments and your full total (usually doesn’t change).
  • Principal: This is the amount you pay toward the principal; it will increase throughout your repayment process.
  • Interest: This is the amount you pay in interest; it will decrease throughout your repayment process.
  • Ending balance: After you make your scheduled payment, this is your anticipated balance.
  • Total interest: This represents the current, total amount you’ve paid in interest.


Looking for business funding? Learn more about small business loans here

What is a payment schedule?

A payment schedule is less detailed than an amortization schedule. It’s essentially a calendar that shows payments and their due dates, Omueti said. You can ask your lender for a payment schedule, but keep in mind that it won’t breakdown what part of your payment goes toward your interest and principal. See example below.

Read on to learn more about the differences between an amortization schedule and payment schedule, In addition, discover when an amortization schedule might come in handy.

Breaking down a payment schedule:

Payment Schedule

ABC Bank
Loan amount: $20,000
Annual interest rate: 3.350%
Loan period: 12 months

Payment number Starting balance Scheduled payment Ending balance
1 $20,000 $1,697.06 $18,358.77
2 $18,358.77 $1,697.06 $16,712.96
3 $16,712.96 $1,697.06 $15,062.55
4 $15,062.55 $1,697.06 $13,407.53
5 $13,407.53 $1,697.06 $11,747.90
6 $11,747.90 $1,697.06 $10,083.63
7 $10,083.63 $1,697.06 $8,414.72
8 $8,414.72 $1,697.06 $6,741.14
9 $6,741.14 $1,697.06 $5,062.90
10 $5,062.90 $1,697.06 $3,379.97
11 $3,379.97 $1,697.06 $1,692.34
12 $1,692.34 $1,697.06 0


Key differences

The main difference between the two types of schedules is the level of detail. The amortization schedule breaks down a payment into the amount you pay toward interest and the amount you pay toward the principal, but the payment schedule does not. You might prefer a basic payment schedule — it will help you stay current with payments and build your business credit if you make consistent, on-time payments. Both schedules can provide you with a road map for your payments throughout your business loan.

You can also use an amortization schedule to calculate your repayment process. Say you want to repay a portion of your loan early — that repayment might impact the course of your total repayment process. You could use an amortization schedule to see how prepayments might reduce your principal amount faster. It is useful for tracking payments, especially on long-term loans, Omueti said.

The bottom line

So should you use an amortization or a payment schedule? It depends on whether you want a comprehensive breakdown of your repayment process or a basic schedule that tell you when to pay and how much you owe.

The more knowledge you have about repaying your loan, the better. Not only will you be able to identify where you are in the payment process, you’ll see where your payments are going and the total amount you need to pay. This information could be useful, particularly if you’re considering making an early payment on the loan. At the end of the day, however, the choice is yours.


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