Explore commonly used personal finance terms.
An amortizing loan is a type of loan where each payment covers both interest and a portion of the principal. This ensures that the balance decreases over time and that the loan is fully paid off at the end of the term. Mortgages, car loans, and personal loans are common examples. Amortizing loans benefit borrowers by providing predictable payments and a clear payoff schedule, helping manage debt more effectively. Lenders also prefer this structure, as it reduces the risk of unpaid debt over the long term.
