WordGarden.ioamortization
C2Pronunciation
UK
- /əˌmɔːtaɪˈzeɪʃən/countableuncountablenoun
US
- /ˌæmərtɪˈzeɪʃən/
Meanings
Noun
the scheduled repayment of a loan over time through regular payments that reduce the balance
the accounting write-off of an intangible asset or similar cost over time
Beyond the definition
Imagine you're building a magnificent castle, but you can't pay for it all at once! Instead of one huge payment, you agree to make smaller payments over many years. That process—slowly paying down the cost over time—is amortization.
It is most often used when talking about loans like mortgages or car loans. Each month, a portion of your payment goes toward interest, and the rest reduces the amount you still owe (the principal). Over time, that principal shrinks until it reaches zero! Amortization isn't just for loans, though; it can also describe spreading out the cost of an intangible asset, like a patent. Think of it as turning a big lump sum into manageable bites.
Amortization is the process of gradually paying off a debt over time through regular payments. Each payment typically includes both principal (the original amount borrowed) and interest (the cost of borrowing). The key to amortization is that the proportion going toward principal increases with each payment, while the portion for interest decreases.
You'll most commonly encounter this term when discussing long-term loans like mortgages, auto loans, or student loans. An amortization schedule details exactly how much of each payment goes toward principal and interest over the life of the loan—a helpful tool to understand your debt repayment plan.
However, amortization isn't limited to just loans! In accounting, it refers to spreading out the cost of an intangible asset (like a patent or trademark) over its useful life. This allows businesses to recognize expenses gradually rather than all at once.
Think of it like this: you buy a giant chocolate bar and decide to enjoy one square each day instead of eating it all in one sitting. That's amortization—spreading out the enjoyment (or cost!) over time. So, whether you're paying off a house or accounting for an asset, amortization is about systematic reduction and gradual expense allocation.
Examples
- 1
Mortgage schedule
The bank gave us an amortization schedule for the mortgage before we signed the papers.
- Phrasean amortization schedule
a table showing how the loan is paid off over time
- 2
Loan payoff
By making extra payments each year, we can shorten the loan’s amortization and save on interest.
- 3
Accounting expense
The company reports the amortization of its patents as an expense over several years.
See also
Similar
- loan repayment
- debt repayment
- principal reduction
Shades of meaning
- debt service
- paydown
Contrast
- interest-only loan
- balloon payment
Do not confuse
Used with (collocations)
- amortization schedule
- loan amortization
- amortization period
- fully amortized loan
Word family
Explore
Forms and spellings
2 forms open this card.
Main spelling
- amortizationnoun
Forms
- amortizationspluralnoun