Finance
What is Amortization?
Amortization is paying off a debt over time in regular, equal installments that cover both interest and principal. Early payments go mostly to interest, while later ones chip away more at the original amount borrowed.
See it, don’t just read it.
Watch a 2-minute lesson with voice + animation that explains amortization.
Key things to understand
- 1It spreads a loan into equal, scheduled payments over time.
- 2Each payment covers some interest and some principal.
- 3Early on, more of each payment is interest; later, more is principal.
- 4It's how most mortgages and car loans are repaid.
Frequently asked questions
- What does amortization mean?
- Gradually paying off a loan through regular payments that cover both interest and the principal.
- Why is early loan interest so high?
- Interest is charged on the remaining balance, which is largest at the start, so early payments are mostly interest.
- What's an amortization schedule?
- A table showing each payment and how it splits between interest and principal until the loan is paid off.