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What is amortization?
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Quick answer
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. It spreads a loan into equal, scheduled payments over time.
Key things to understand
- It spreads a loan into equal, scheduled payments over time.
- Each payment covers some interest and some principal.
- Early on, more of each payment is interest; later, more is principal.
- It's how most mortgages and car loans are repaid.
People also ask
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.
Part of the guide: Money Basics: Save, Borrow & Invest →