What Is Loan Amortization?
Amortization means repaying a loan with regular payments that lower the balance.
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In this lesson you learn to
- Explain how a loan is paid off by regular payments (amortization)
- Split a payment into interest and principal
- Compare a 30-year and a 15-year term in a worked example
- Use the quick check: payment times number of payments minus the amount borrowed
Check yourself: sample questions
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1.What is loan amortization?
Amortization means repaying a loan with regular payments that lower the balance.
2.Early in a loan, which part of each payment is usually bigger?
At the start more of the payment goes to interest; the balance falls slowly at first and faster near the end.
3.True or false: interest is charged on the full original loan every month.
Interest is charged only on the remaining balance.
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Sources (3)
- CFPB: Mortgages key terms (Glossar)
- CFPB: What is amortization and how could it affect my auto loan?
- Eigene Berechnung (Annuitaetendarlehen, Python decimal, 50 Stellen)
Education only. Not financial advice.