Definition of Amortized Loan



An amortized loan is a loan that has a schedule of repayments or payment plan in installments over the time of loan matures. It is just like amortization schedule in which the installment amount contains the interest and principal. First, we calculate the interest on the principal due and then we deduct the interest amount from the installment amount. The rest is principal that is paid. For example, a loan of $188,400.65 is repayable in 10 equal installments plan at the annual rate of 5.5% will have the following payment structure.

Year

Installment

Interest (5.5%)

Principal Paid

Principal remaining

0

                       -  

                      -  

                        -  

                   188,440.65

1

       25,000.00

       10,364.24

         14,635.76

                   173,804.89

2

       25,000.00

         9,559.27

         15,440.73

                   158,364.15

3

       25,000.00

         8,710.03

         16,289.97

                   142,074.18

4

       25,000.00

         7,814.08

         17,185.92

                   124,888.26

5

       25,000.00

         6,868.85

         18,131.15

                   106,757.12

6

       25,000.00

         5,871.64

         19,128.36

                     87,628.76

7

       25,000.00

         4,819.58

         20,180.42

                     67,448.34

8

       25,000.00

         3,709.66

         21,290.34

                     46,158.00

9

       25,000.00

         2,538.69

         22,461.31

                     23,696.69

10

       25,000.00

         1,303.32

         23,696.69

                                0.00

 

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