![]() This will provide the lender with the following: You only pay off a small piece of the principle amount.Īs time goes on, more and more of each payment goes towards your principal (and you pay less in interest each month).Īmortizing a loan usually means establishing a series of equal monthly payments. Especially with long-term loans, the majority of each periodic payment is taken as an interest expense. ![]() Generally, your interest costs are at their highest at the beginning of the loan. With each monthly/quarterly payments a portion of the money goes to the principal amount and the other to interest amounts. ![]() In simple terms, Amortization happens when you pay off a debt over time with regular, equal payments. As per Wiki – “In banking and finance, an amortizing loan is a loan where the principal of the loan is paid down over the life of the loan (that is, amortized) according to an amortization schedule, typically through equal payments.”
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