Loans

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 amount.

Here comes the eye opening part.

In an amortized loan, the interest is front-loaded, which means that most of the first payments you make on your term will go to paying off the interest, NOT your principal.

That means you could be paying for months, even years, and most of your monthly payments will still go towards paying off the interest.

The best way to learn what this means is to look at the schedule yourself.

Visualizing the Loan

Play around with the calculator. Enter your loan amount, a reasonable interest rate as of late 2025, is between 6-7%, the usual mortgage terms are 15-years, 30-years, and even 50-years are being considered nowadays.

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 more principal is being paid than interest.