Deal Pack Blog

What is an Amortization Schedule?

posted on: August-08-2012
by: Deal Pack
category: Tips

Amortization is a term that refers to the gradual paying off of a debt in regular installments over a period of time. It’s the reduction of the value of an asset by pro-rating it’s cost over time.

 

Anytime you borrow money, you must pay back the amount you borrowed (principal) and the fee the lender charged you for borrowing it (interest). Lending institutions use the process of amortization to determine your monthly payment which is a combination of principal and interest. Amortization ensures you pay your loan in full with consistent payments at regular intervals through the term of the loan.

 

When making payments on an interest bearing loan, part of each payment is applied toward interest and the rest pays down the loan balance, or principal. As the loan is paid down, more and more of each payment is applied toward the principal and less towards interest.

 

An amortization schedule on a simple interest loan is effective if every payment is made on time every time. Since interest is calculated on a daily rate or per diem, when a payment is made late an extra day of interest is earned over and above the originally calculated finance charge.

 

An example of an Amortization Schedule would appear as:

 

Amount Financed = $1,000.00

Interest Rate =10%

#of Payments = 6 Monthly

Payment Amount = $171.56

Finance Charge = $29.36

 

Table1

 

Verify that the DMS solution you’re utilizing provides an Amortization Schedule that you can view or print when requested. Deal Pack software provides this option located at both the Customer and Payment sections.

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