Loan mechanics
Amortization
Repaying a loan through regular payments that cover both interest and principal
On a fully amortizing loan the payment stays level while its composition shifts: early payments are mostly interest, later ones mostly principal, and the balance reaches zero exactly at maturity. Interest is always computed on the outstanding balance.
How the exam asks about it
A first-month interest calculation is a standard maths item: annual balance times rate, divided by twelve.
Related terms
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