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Glossary Finance

Amortization

Amortization is paying off a debt through regular instalments that each cover interest plus part of the principal, so the balance reaches zero by the end of the term.

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In more detail

In a fixed-rate loan every payment is equal, but early payments are mostly interest and late ones mostly Principal. A table showing each payment's split is an amortization schedule. In accounting, amortization also means spreading the cost of an intangible asset, such as a patent, over its useful life. See How Loan Amortization Works.

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See also

  • Glossary Principal
    The principal is the original amount of money borrowed or invested, before any interest is added.
  • Glossary APR
    APR (annual percentage rate) is the yearly cost of borrowing, expressed as a percentage, that includes the interest rate plus certain fees.
  • Guide How Loan Amortization Works
    The loan payment formula, why early payments are mostly interest, a worked $200,000 example month by month.
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