In personal finance, the process of gradually paying off a loan through scheduled payments is called amortization.
An amortizing loan divides repayment across a timetable. Each scheduled payment usually contains interest and a portion that reduces the principal. Early payments on many long-term loans contain a larger interest share, while later payments contain a larger principal share.
Mortgage amortization is a familiar example. A lender can provide an amortization schedule showing the payment date, total payment, interest, principal reduction, and remaining balance. Extra payments may reduce the balance faster, but the effect depends on the contract and lender rules.
Amortization differs from depreciation. Depreciation spreads the recorded cost of a physical asset over its useful life, while loan amortization describes repayment of debt.