What Is an Amortized Loan?

An amortized loan is one that allows all monthly payments to be the same amount for the entire term of the loan. The payments are calculated to apply certain amounts to principal and interest from each payment. During the first years of the loan term, such as 5 to 10 years of a mortgage, most of the amortized loan payment will go to loan interest. As the payments are continuously made on time, or ahead of schedule, the payments toward the end of the loan term will go mostly to principal with little or none going to the interest on the loan.

What Loans Are Traditionally Amortized?

Generally speaking, most auto loans are amortized. Many different types of mortgages are also amortized--those with fixed interest rates and terms are the most common. If you have a balloon payment mortgage, you have a partially amortized loan with payments fixed for a certain period and then a large payment due at the end of the term. When financing a loan of any sort, you can ask the lender to provide an amortization schedule, which will show the number of payments and a breakdown of how much of each payment goes to principal and interest over the course of the loan.