How finance folk use it
Amortizations are the monthly payments that you make on a loan. The amortization already includes both how much you have to pay in terms of the loan amount, as well as the interest due. If you have a loan, you generally have an amortization schedule that tells you how much you will pay every month over time.
Note that some loans have periods where the interest rate is “float.” That means, it depends on the general loan interest rates in the market. In these cases, your amortization schedule isn’t set in stone and your monthly payments may vary during certain periods.
Other things that might change how much you pay in amortizations are making a large, advanced payment (lump sum payment), missing payments, or loan restructuring.
Is it good or bad?
Amortizations are particularly helpful to people who buying a house or car. Instead of having to pay the full price in one go, you can get it through a home or a car loan instead. By getting a loan, the bank or financing company pays for the property or the car and you get to use it while slowly paying over time.
Of course, you end up paying more for the property with a loan, because you will have to pay interest. However, you’re paying these within the amortizations. As long as you can afford the monthly payments, you won’t have to shell out a large amount of money. This gives you the advantage of having cash on hand, in case you need it for something else.
What it means for you
One of the first things you should look at before you even consider a loan is if you can afford the amortizations and still have cash left over for your day-to-day needs.
Many banks and financing companies these days offer loan calculators. This can give you an idea of how much getting a home or a car loan might cost you every month.
