Amortized Loan
Because it uses the word "amortized," these loans sound very snooty. Like if you were to meet someone named Chester Hamilton Festerbottom IV. You'd assume he comes from a long line of monocle salesmen. But you don't know him...he might enjoy Mr. Pibb and MMA and own a tattoo parlor down by the airport.
Same with amortized loans. They aren't snooty. They're actually very down to Earth. All the things you likely think of first when you think of loans (car loans, home loans, personal loans) typically fall under this category.
Amortized loans are just ones that are paid off in installments. The interest and principal are figured up front and then divided into regular payments.
Say you're buying a $20,000 car. You put $5,000 down and will be getting a 60-month loan for the rest of the cost, with a 5% interest rate. So $15,000 at 5% over five years. So that's $750 a year in interest (5% of $15,000) times five years (making a total of $3,750 in interest for the life of the loan). So you'll be paying the lender $18,750 total ($15,000 principal + $3,750 interest). Divide that by 60 months and you get a monthly payment of $312.50.
Often times, the loan schedules are organized so more interest is paid in the early stages of the loan, with the majority of the principal getting paid off later.
Related or Semi-related Video
Finance: What is an LLC?4 Views
finance a la shmoop. what is an LLC? LLC no that's not a rapper, that's a limited
liability company or look as professionals in the business pronounce
it. well why do you want one? because limiting your liability is a [man explains]
good thing if you're the one potentially liable for that stooge who slips on a
banana peel in your lobby waiting area and then Sue's you and wins. if you start
building your own company as an individual and not as an LLC and you get
sued for whatever, and you lose well you could lose everything you own.
that is the lawyers will come after your house your car your poodle your signed
Mila Kunis photograph collection, and legally well they'll be entitled to take
all of it. if you have existed under the legal structure of an LLC however, well [legal structures pictured]
the most you can be liable for is the assets of the business itself. yes
they'll take the company computer the remaining 17 months of lease on the
company building, and all your staplers and posted thingies but legally they
won't be able to go after your home your car your poodle or your autograph
collection. Mila is safe whew. so LLC's are a good thing they cost only a few
hundred bucks to set up these days, hi LegalZoom. so before you start up a lava
lamp company of your own think about setting up an LLC first. Mila and your [lava lamps in a row]
poodle gregory will thank you for it.
Up Next
What is amortization? Amortization tracks the decline in value of a contract or service, usually paid for in advance. You received $10,000 in advan...
What are Fixed Assets, Tangible Assets and Intangible Assets? Fixed assets are long term, illiquid assets that are necessary for a company’s oper...
What is Bond Amortization? Bond amortization is simply the spreading out of the cost of the bond over time. Bonds have amortization schedules and t...