Amortization Schedule

A type of calendar showing the timing and breakdown of interest payments and principal repayments associated with a loan.

Let’s say Ebenezer loans $100 to Tim over 3 years at 20% annual interest. Ebbie’s banker would do some fancy math and determine that Tim will need to pay $47.47 each year to fulfill his obligation. At the end of Year 1, $20 of the $47.47 would be an interest payment and the remaining $27.47 would be principal repayment, taking the balance down to $72.53 ($100 - $27.47 = $72.53).

Then, in Year 2, 20% of that ($14.51) would be paid in interest with the balance of $32.97 ($47.47 - $14.51) repaying principal and so on, until the entire balance is repaid at the end of Year 3, right on (amortization) schedule.