![]() She will repay the loan with five equal payments at the end of the year for the next five years. ![]() In the following example, assume that the borrower acquired a five-year, $10,000 loan from a bank. A fully amortized loan is fully paid by the end of the maturity period. Amortization is the process of separating the principal and interest in the loan payments over the life of a loan. After she has made her final payment, she no longer owes anything, and the loan is fully repaid, or amortized. The amount borrowed that is still due is often called the principal. In these timed payments, part of what she pays is interest. When she makes periodic loan payments that pay back the principal and interest over time with payments of equal amounts, these are considered fully amortized notes. When a consumer borrows money, she can expect to not only repay the amount borrowed, but also to pay interest on the amount borrowed. While they have some structural differences, they are similar in the creation of their amortization documentation. In our discussion of long-term debt amortization, we will examine both notes payable and bonds.
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