Legal Definitions - amortization schedule

An amortization schedule is a detailed table that outlines the periodic payments for a loan or debt over its entire term. It breaks down each payment, showing precisely how much goes towards reducing the original amount borrowed (the principal) and how much covers the cost of borrowing (the interest). Crucially, it also tracks the remaining balance of the debt after each payment is made, providing a clear roadmap for how the debt will be fully paid off.

• Example 1: Home Mortgage

  A couple takes out a 30-year mortgage to buy a house. Their lender provides an amortization schedule that shows every monthly payment for the next three decades. For each payment, the schedule clearly indicates the portion that reduces the actual amount borrowed (principal) and the portion that covers the interest charged. It also displays the decreasing outstanding mortgage balance after each payment, allowing the couple to see exactly how their debt diminishes over time until it reaches zero.

• Example 2: Car Loan

  Someone purchases a new car with a five-year loan. The car dealership's finance department gives them an amortization schedule. This schedule details each of the 60 monthly payments, specifying how much of each payment goes towards paying off the car's purchase price (principal) and how much is for the interest on the loan. By reviewing the schedule, the buyer can track their progress in paying down the car loan and see the exact remaining balance after every payment.

• Example 3: Small Business Loan

  A small business owner secures a loan to purchase new equipment. The bank provides an amortization schedule for the seven-year loan. This document outlines each of the 84 monthly payments, showing the precise amount allocated to the principal of the equipment loan and the amount applied to interest. It also clearly indicates the declining total loan balance after each payment, helping the business owner manage their cash flow and track their progress toward owning the equipment outright.