what is amortisation?

Amortization refers to the process of gradually paying off a debt over time through a series of regular payments. These payments typically consist of both principal and interest portions, with the principal representing the initial amount borrowed and the interest representing the cost of borrowing.

In the context of loans, such as mortgages or car loans, each payment made reduces the outstanding balance of the debt, leading to a decrease in the amount of interest charged in subsequent payments.

Amortization schedules outline the breakdown of each payment, showing how much goes towards principal and how much towards interest, as well as the remaining balance over the life of the loan. Amortization allows borrowers to gradually repay their debts in a structured manner, making it easier to budget and plan for future payments.