Amortization is the process of gradually repaying a debt over a specified period through consistent, scheduled payments.
Each payment covers both the interest and a portion of the principal (the original loan amount). In the early stages, a larger portion of the payment goes toward interest, while later payments contribute more to reducing the principal.
This structured repayment plan ensures that the loan is completely paid off by the end of its term. Amortization applies to many types of loans, including mortgages, car loans, and personal loans.
The term can also refer to the spreading out of intangible asset costs, such as patents or copyrights, over their useful life for accounting purposes.