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LSDefine
Simple English definitions for legal terms
amortized loan
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A quick definition of amortized loan:
An amortized loan is a type of loan where you make regular payments that go towards paying off both the interest and the principal amount you borrowed. This means that each payment you make reduces the amount you owe until the loan is fully paid off. It's like slowly chipping away at a big block of ice until it's all gone. This is different from other types of loans where you might only pay off the interest and still owe the full amount at the end of the loan term.A more thorough explanation:
An amortized loan is a type of loan where the borrower makes regular payments that go towards paying off both the interest and the principal amount. This means that with each payment, the borrower is reducing the amount owed on the loan.
For example, let's say you take out a $10,000 loan with a 5% interest rate and a 5-year term. With an amortized loan, you would make regular payments over the 5-year period that would go towards paying off both the interest and the principal. By the end of the 5 years, you would have paid off the entire loan amount plus interest.
Amortized loans are commonly used for mortgages, car loans, and personal loans. They are beneficial for borrowers because they allow for predictable payments and a clear timeline for paying off the loan.