Amortization.

Amortization is the process of gradually paying off a debt through scheduled, periodic payments that cover both principal and interest over a defined term. Each payment in an amortizing loan is structured so that the total payment amount remains constant, but the allocation between interest and principal shifts over time: early payments consist predominantly of interest, while later payments redirect an increasing share toward principal reduction as the outstanding balance declines. This shifting allocation occurs because interest is calculated on the remaining principal balance — as that balance falls, so does the interest component of each payment, freeing up more of the fixed monthly payment to retire principal. A fully amortizing loan reaches a zero balance precisely at the scheduled end of its term, leaving no balloon payment. Standard home mortgages, auto loans, and personal loans in the United States are typically structured as fully amortizing instruments. An amortization schedule — a table showing every payment, its interest and principal components, and the remaining balance after each payment — makes the mechanics transparent and allows borrowers to understand how extra principal payments early in the loan's life produce disproportionately large savings in total interest paid. In accounting, amortization also refers to the systematic allocation of the cost of an intangible asset — such as a patent, trademark, or acquired customer list — over its useful life, analogous to how depreciation allocates the cost of tangible assets. The two uses of the term are conceptually similar: both spread a cost over time according to a predictable schedule rather than recognizing it all at once.