Amortization

Amortization is the process of gradually paying off a debt over time through regular payments. Each payment consists of both principal (the original amount borrowed) and interest (the cost of borrowing). As you make payments, the principal balance decreases, leading to lower interest costs in future payments. Amortization is often used for loans like mortgages or car loans, where the payment amount remains consistent but the proportion going toward principal versus interest changes over time. This allows borrowers to repay their debts in a manageable way, typically over several years.