How to read a loan amortization schedule — and why your numbers don't match the bank's

If you've ever used an online loan calculator and compared the result to the payment on your loan documents, you've probably noticed they don't match exactly. Sometimes it's off by a few cents. Sometimes by a few dollars. This isn't a bug — it's a feature of how banks actually calculate interest, and understanding it can save you confusion and money.

What is an amortization schedule?

An amortization schedule is a complete table of every payment on a loan, showing exactly how each payment is divided between interest and principal. In the early payments, the majority goes to interest. In the final payments, almost everything goes to principal. This is called front-loaded interest.

The key insight: the total amount you pay never changes from month to month (assuming a fixed rate), but the split between interest and principal shifts every single month.

The standard monthly payment formula

For a fixed-rate loan, the monthly payment is calculated with this formula:

For example: $46,673.83 loan, 4.99% APR, 60 months:

• Monthly rate = 4.99% ÷ 12 = 0.4158%
• Payment = $46,673.83 × [0.004158 × (1.004158)⁶⁰] / [(1.004158)⁶⁰ − 1]
• = $880.58/month (approximately)

But if you look at a real TILA disclosure for this loan, the payment is $882.38. What's going on?

Why your number doesn't match the bank: odd-days interest

The formula above assumes your first payment is exactly one calendar month after the loan originates. In reality, loans almost never close on exactly the right day. There are almost always odd days — the gap between origination and first payment isn't exactly 30 or 31 days.

The bank calculates interest for those 14 extra days and adds it to the balance before computing the 60 equal payments. This is called capitalizing the odd-days interest.

The day-count convention: 360 vs 365

Notice the formula above uses 360 days, not 365. This is called the Actual/360 day-count convention. It's standard for US auto loans, commercial loans, and many personal loans.

Some loans use Actual/365 — more common for mortgages and certain personal loans. Using 365 instead of 360 gives a slightly smaller odd-days charge.

Reading the schedule: a real example

Here's what the first few rows of an amortization schedule look like for the example above ($882.38 payment, 4.99%, 60 months, capitalized odd-days):

Notice how in payment #1, only $686.98 goes to principal — but by payment #60, almost everything ($878.48) goes to principal. The interest charge drops every month because the balance is getting smaller.

How to match your bank's exact schedule

To generate a schedule that exactly matches your bank's TILA disclosure:

1. Enter the origination date and first payment date exactly as shown on your loan documents
2. Enable "Capitalize odd-days into balance" (this is standard bank practice)
3. Set day-count to Actual/360 for most US auto and commercial loans
4. Enable "Payment Override" and enter the exact payment from your TILA disclosure (e.g., $882.38)

The power of extra payments

The most valuable feature of an amortization calculator is modeling extra principal payments. Adding even $100/month extra to a 60-month car loan can save hundreds in interest and pay off the loan months early.

Key terms to know

• Principal: The original amount borrowed (and the remaining balance)
• Interest: The cost of borrowing, calculated on the outstanding balance
• Amortization: Gradual repayment of debt through regular payments
• Odd-days interest (stub period): Interest for the days between origination and first payment that don't fit a full month
• TILA disclosure: Truth-in-Lending Act document your lender must provide showing APR, finance charge, total of payments, and payment schedule
• Actual/360: Day-count convention where daily interest = balance × rate / 360
• Payoff date: The date of the final payment when the balance reaches $0