Glossary

Amortisation is the process of gradually reducing a debt or spreading the cost of an intangible asset over its useful life.

In the context of loans, it refers to the systematic payment of principal and interest over a specified period, allowing the borrower to fully repay the debt by the end of the term. In accounting, it pertains to allocating the cost of an intangible asset, like a patent or trademark, over its useful life. 📆

For example, if a company takes out a 5-year loan for $100,000 with a fixed interest rate, the amortisation schedule would outline the monthly payments required to repay the loan in full by the end of the 5 years.

Fun fact: The word "amortisation" comes from the Old French word "amortir," which means "to deaden" or "extinguish." In the financial context, it's about extinguishing the debt or the cost of an asset over time. 💡 Amortisation schedules can be a helpful tool for borrowers to visualise how their loan payments are allocated between principal and interest, helping them better understand their debt repayment progress.