Amortization period


The amortization period is the total length of time it takes a company to pay off a loan—usually months or years.

If a company chooses a short amortization period, it will pay less interest overall but must make higher payments on the principal (the original amount of the loan before interest). A company that takes a longer amortization period will have lower monthly payments but pay more interest overall.

The term “amortization period” should not be confused with amortization expenses. While both refer to financial changes over time, amortization expenses are the costs of long-term assets like computers and vehicles that a company accounts for over their lifetimes.

More about the amortization period

In the example below, ABC Co. has borrowed $100,000 and agreed to a 12-month amortization period at an interest rate of 5%. Each monthly payment includes payments of principal plus interest. The table shows how the principal balance gets smaller with each payment, along with the associated interest expense.