When you take out an amortizing loan, your monthly payment on the loan remains the same over the life of the loan. However, the portion of the loan that pays off accrued interest and the portion that pays down your principal change over the life of the loan. At the start, more of your payment will go toward interest, but as the amount you owe decreases, so will the amount of interest paid. You must recalculate the principal and interest each time you make a payment.

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     Divide the annual interest rate by the number of payments you make during the year to find the periodic interest rate. For example, if you make monthly payments and your loan has an annual interest rate of 10.2 percent, you divide 0.102 by 12 to get 0.0085 as your monthly interest rate.

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When you borrow money the balance is often called the principal balance. If you have all of the terms and conditions of your loan you can calculate how the principal is repaid when you make payments. Your payment is divided between the principal balance and interest. Interest is calculated on the unpaid balance, therefore the faster you pay down your balance the less you will have to pay in finance charges. To pay your balance faster you may want to consider paying more than your standard monthly payment.

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     Gather all of the terms and conditions of your loan. Your loan could be a credit card account, mortgage loan, automobile loan, or even a home equity line of credit. A 10 year loan in the amount of $20,000 with an interest rate of 6 percent will have payments in the amount of $222.04.

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