All Loans are Rigged

If you have "good enough" credit, most banks will lend you money.

They'll give you an amortizing loan with an amortization schedule calculated by this little formula.

P = [ r * (1 + r)^n ] / [ (1 + r)^n - 1 ] * L

Where:

• P is the monthly payment you have to make
• L is the amount of the loan (principal)
• r is the monthly interest rate (the annual rate divided by 12)
• n is the total number of payments (the number of months it'll take to pay off the loan)

Why it matters

This is the same formula they use when you want to buy a house with a mortgage, get a car loan, or even a personal loan.

How it works

When you take out a loan, you'll have to pay the principal and interest. The principal is the amount you asked to borrow. The bank is in the business of making money, so they'll also charge you interest. The interest is what you'll be paying back on top of the loan.

In an amortized loan, the interest is front-loaded, which means that most of your earlier payments will go towards paying off your interest first. The principal is left to be paid in the later payments in your schedule.

That means that on a typical 30-year mortgage, you will be paying your interest as highest priority for years before you pay back the lion share of the principal.

Visualizing the Loan

This concept is tough to grasp. So I put together this schedule calculator and table to help you visualize the loan term.

Play around with it. Enter your loan amount, a reasonable interest rate as of late 2025, is between 6-7%, the usual mortgage terms are 15-years and 30-years.

Each row represents a monthly payment, pay attention to how much of the payment goes to interest and principle. As you scroll down you'll see a point where the columns go from red to green, that's the point where the amount you actually borrowed is being paid back.