what is amortization 
amortization is an accounting technique used to periodically lower the book value of a loan or an intangible asset over a set period of time concerning a loan amortization focuses on spreading out loan payments over time when applied to an asset amortization is similar to depreciation investopedia paige mclaughlinunderstanding amortizationthe term amortization refers to two situations first amortization is used in the process of paying off debt through regular principal and interest payments over time an amortization schedule is used to reduce the current balance on a loan for example a mortgage or a car loan through installment payments second amortization can also refer to the practice of spreading out capital expenses related to intangible assets over a specific duration usually over the asset s useful life for accounting and tax purposes amortization of loansamortization can refer to the process of paying off debt over time in regular installments of interest and principal sufficient to repay the loan in full by its maturity date a loan amortization schedule represents the complete table of periodic loan payments showing the amount of principal and interest that comprise each level payment until the loan is paid off at the end of its term a higher percentage of the flat monthly payment goes toward interest early in the loan but with each subsequent payment a greater percentage of it goes toward the loan s principal amortization can be calculated using most modern financial calculators spreadsheet software packages such as microsoft excel or online amortization calculators when entering into a loan agreement the lender may provide a copy of the amortization schedule or at least have identified the term of the loan in which payments must be made amortization schedules can be customized based on your loan and your personal circumstances with more sophisticated amortization calculators you can compare how making accelerated payments can accelerate your amortization if for example you are expecting an inheritance or you get a set yearly bonus you can use these tools to compare how applying that windfall to your debt can affect your loan s maturity date and your interest cost over the life of the loan accountants use amortization to spread out the costs of an asset over the useful lifetime of that asset 