Loan amortization
Loan amortization is the repayment of borrowed principal. A periodic installment may include both principal repayment and interest.
Reviewed 05.10.2026 · Version 2 · Scope: General
How to interpret it
An amortization schedule shows how the outstanding principal changes over time. Depending on the agreed method, a fixed installment may allocate different amounts to principal and interest as the loan progresses.
Example
Hypothetical example: if a €300 installment allocates €220 to principal and €80 to interest, that payment amortizes €220 of the loan. Not all contracts use this allocation.
Why it matters to you
It helps show how much remains to be repaid and to assess early repayment in light of the contract terms and any applicable fees.
Common points of confusion
This glossary uses the financial meaning. It should not be confused with vehicle depreciation or the accounting amortization of an asset.
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