Glossary

Amortization

Paying off a loan through regular installments that cover the interest due and part of the principal, so the balance reaches zero by the end.

An amortization schedule splits each payment into interest and principal. Early payments are mostly interest because the balance is at its highest. As the balance falls, the interest share shrinks and more of each payment goes to principal.

The amortization period and the loan term are not always the same. A loan can be amortized over 10 years but due in 3, which leaves a balloon payment at the end.

Example: $100,000 at 12% amortized over 60 months is $2,224.44 a month. In month 1, $1,000.00 is interest and $1,224.44 is principal. By month 60, $22.02 is interest and $2,202.42 is principal.

Merchant cash advances do not amortize. Each remittance reduces the purchased amount by its full value, because the cost was fixed at signing.

All terms