Browse Definitions :
Definition

amortization

Contributor(s): Ivy Wigmore

Amortization is a financial practice that allows buyers to pay for something over an extended schedule rather than all at once. Mortgages and car loans, for example, are commonly paid through an amortization schedule.

An amortization schedule typically involves regular payments over a particular time period. Essentially an extension of credit, amortization allows people and businesses to make purchases that they don't have funds available to pay in full. Because interest is factored into payments, the total cost of an amortized purchase is significantly higher than the original price. 

In business, amortization is usually separated into amortization of assets and amortization of loans because those categories are handled differently. Amortization is often the most cost-effective method of allocating funds for a given expense, even if the funds are available for immediate payment, because there may be a more profitable use of those funds. Similarly, a business may take out a loan rather than paying for something outright because there is a financial advantage, such as optimizing a tax deduction over an extended period.

In financial reporting and corporate governance, amortization is the A in EBITDA (earnings before interest, taxation, depreciation and amortization).

Amortization originates from the Latin admortire meaning to kill.

This was last updated in February 2018

Continue Reading About amortization

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.

-ADS BY GOOGLE

File Extensions and File Formats

SearchCompliance

  • compliance audit

    A compliance audit is a comprehensive review of an organization's adherence to regulatory guidelines.

  • regulatory compliance

    Regulatory compliance is an organization's adherence to laws, regulations, guidelines and specifications relevant to its business...

  • Whistleblower Protection Act

    The Whistleblower Protection Act of 1989 is a law that protects federal government employees in the United States from ...

SearchSecurity

  • RSA algorithm (Rivest-Shamir-Adleman)

    The RSA algorithm is the basis of a cryptosystem -- a suite of cryptographic algorithms that are used for specific security ...

  • remote access

    Remote access is the ability to access a computer or a network remotely through a network connection.

  • IP Spoofing

    IP spoofing is the crafting of Internet Protocol (IP) packets with a source IP address that has been modified to impersonate ...

SearchHealthIT

SearchDisasterRecovery

  • virtual disaster recovery

    Virtual disaster recovery is a type of DR that typically involves replication and allows a user to fail over to virtualized ...

  • tabletop exercise (TTX)

    A tabletop exercise (TTX) is a disaster preparedness activity that takes participants through the process of dealing with a ...

  • risk mitigation

    Risk mitigation is a strategy to prepare for and lessen the effects of threats faced by a data center.

SearchStorage

  • enterprise storage

    Enterprise storage is a centralized repository for business information that provides common data management, protection and data...

  • disk array

    A disk array, also called a storage array, is a data storage system used for block-based storage, file-based storage or object ...

  • optical storage

    Optical storage is any storage type in which data is written and read with a laser. Typically, data is written to optical media, ...

Close