Amortized Loan

An amortized loan is a type of loan where the borrower makes regular, periodic payments that cover both the principal amount borrowed and the interest charged on the outstanding balance. The distinguishing feature of an amortized loan is that each payment is divided into two parts: a portion goes towards paying off the interest accrued since the last payment, and the remaining portion goes towards reducing the principal balance.

With each successive payment, the amount applied towards the interest decreases, while the amount applied towards the principal increases. This gradual reduction of the principal balance over time is known as amortization.

Amortized loans typically have a fixed interest rate and a predetermined repayment schedule. However, some amortized loans can also have a variable rate of interest. 

Amortized loans are commonly used for mortgages, auto, and personal loans. The regular payment amounts are typically calculated using an amortization formula that takes into account the loan amount, interest rate, and term.

One key benefit of an amortized loan is predictability: borrowers know exactly how much they need to pay each period, making it easier to budget and manage finances. Additionally, the declining interest portion over time can make the loan more affordable as it progresses.