Amortization is an accounting term used for two separate processes: Amortization of Loan and Amortization of Asset.
Amortization of Loan is the process of spreading out a loan into a series of fixed payments over a period of time, such as monthly loan payments. An individual will be pay off the loan’s interest and principal in different amounts each month, although the total payment remains equal each period.
Amortization of Asset, on the other hand, refers to the process of allocating the cost of intangible assets over a period of time. It reflects the consumption of an intangible asset over its useful life. These intangible assets could include: Patents, trademarks, copyrights, organizational cost, etc. Amortization is generally encountered by people while dealing with mortgages or car loans.
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