Amortisation describes the process of paying off a loan gradually over its term through a series of scheduled repayments, until the balance reaches zero. The word comes from the idea of bringing a debt down to nothing over time.
How it works
On an amortising agreement, each repayment does two jobs: it covers the cost of the borrowing for that period and it reduces the outstanding balance. Early on, more of each payment tends to go toward the cost of credit; as the balance shrinks, more goes toward clearing what you owe. By the final scheduled payment, the balance is cleared.
Why it matters
- It gives you a predictable path to clearing the debt, rather than an open-ended balance.
- It shows that part of every payment is genuinely reducing what you owe, not just servicing the cost.
- An amortisation schedule lets you see, payment by payment, how the balance falls.
In context
Not every facility amortises in the same way. A flexible arrangement that you draw against can behave differently from a fixed-term loan with a set repayment schedule. Your own agreement and statements show exactly how your balance reduces over time. If the shape of your repayments is ever unclear, ask us to walk you through your schedule.
See also: Glossary: debenture, Glossary: default (business lending), What is amortisation?.