What is the term for paying off debt with a fixed repayment schedule in regular installments over time?

• A. Interest
• B. Depreciation
• C. Refinancing
• D. Amortization

Answer: (D)

Amortization is the term for paying off debt with a fixed repayment schedule in regular installments over time. Each payment covers both interest on the remaining balance and a portion that reduces the principal. Because the principal shrinks, the interest part declines over time and more of each payment goes toward the principal, until the loan is fully paid off at the end of the term. This is different from simply paying interest, which wouldn’t reduce the principal, depreciation, which is about allocating asset cost over time, or refinancing, which means replacing the debt with a new loan.