Loan Amortization

The repayment of the principal balance of a loan through periodic payments over time. In an amortizing loan, a portion of the loan payment each period is used to pay the interest owed for that period with the balance used to pay down principal on the loan. Although the periodic loan payments remain constant throughout the loan term, the portion allocated to principal reduction increases over time as the principal balance is reduced and thus, less interest is owed in each period.