Amortisation

The process of gradually paying off a loan through regular scheduled payments that cover both principal and interest. An amortisation schedule shows exactly how much of each payment goes toward interest versus reducing the principal balance. In the early stages of a loan, payments are weighted more toward interest; later payments reduce the principal more significantly.

On a 12-month amortised loan of £600 at 39.9% APR, your first monthly payment might allocate £18 to interest and £32 to principal reduction.

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