when the borrower will paying off his/her loan, they would have to make fixed payments periodically as per the contract with the rate of interest that was agreed upon during the time of taking the loan. The process of scheduling the payments and putting in a tabular form is known as amortization. The loan amount repayment may vary every month with the addition of interest,but in actuality, the payment will remain the same during each period. Now you can check out the loan amortization schedule calculator .
What amortization is used for
Amortisation can be used for
- Monthly loan payments
- Costs of intangible assets over a lifetime
- And many more
People mostly take up home and auto loans for which the amortization is charted out for easily calculating the repayment status. The loan is paid towards the interest as well as reducing the balance that you have to pay towards the loan you have borrowed. The interest cost seems really high at the start of the loan. This can be heavily deemed more on the loan term loans that will be cause for this. With a periodic payment, you end up paying a very small part of the balance with the majority of it going towards the interest of the loan. This makes the repayment of the actual amount borrowed very slow in the initial years of periodic payment.
As the payment goes steady over the years the interest rates wane and you will be contributing towards paying off your