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What is Amortization/meaning/concept

Amortization is an economic concept used in several senses. There is an amortization related to obtaining a financial loan. It is the period for which the borrowed amount is returned and refers to a portion that is part of the capital and not the corresponding interest . Thus, each payment made amortizes the capital obtained. In this sense, there are several methods of financial amortization, one of the most common being the French method , in which the installment paid remains the same even if the value of interest decreases over time.

One of the economic circumstances that appears the concept of economy is related to mortgage loans to purchase a home

If over time we make periodic payments, the bank wants to reduce the debt because we have extra money, we would be paying off the mortgage. This can be done in two ways: reduce the monthly installment or the time period agreed with the bank. The solution depends on the personal circumstances of each one, although as a general rule, it is recommended to reduce the term because the total amount to be paid will be lower. Amortization

There is another sense of the term. When we buy a product there is a depreciation caused by its natural wear and tear (obsolescence)

As this involves a depreciation of the object’s value , it is convenient to offset this loss with an amount of money, the sinking fund. To face this situation, companies adopt in their accounting an amortization system to evaluate and quantify how the acquired good is losing its value. Amortization

The most used method is the straight-line amortization, in which a fixed quota is established in each accounting year when measuring the depreciation of the acquired asset. There are other systems, but less used, for example, determined value from a decreasing basis in amortization. Whichever method is used, amortization involves a lower countable benefit, as it is intended to save a certain amount that must be allocated in the future to replace the good obtained and which has already worn out or does not yet have a useful life. Amortization

The term amortization can also be used in a figurative sense. When we want to say, for example, that a person pays off their pants well, it means that they enjoy it satisfactorily, that is, that they wear it frequently.

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