Amortisation is the process of paying off a debt through regular, scheduled payments. Each payment covers a portion of the principal (the original amount borrowed) and a portion of the interest.
In the early years of an amortised loan, most of each payment goes toward interest. Over time, the balance shifts — later payments put more toward the principal. This pattern is laid out in an amortisation schedule, a table that shows exactly how each payment breaks down over the life of the loan.
You’ll hear this when…
Amortisation comes up constantly in mortgage conversations, car loans, and business lending. If someone mentions a “30-year amortisation,” they’re describing how long the repayment is spread across — not necessarily when the loan is due. A loan can have a 30-year amortisation but a 5-year term, meaning the payments are calculated as if you have 30 years to pay, but the remaining balance comes due after 5.
Outside lending, the term also appears in accounting, where it refers to spreading the cost of an intangible asset (like a patent or software licence) over its useful life. Same idea, different context.
Watch for confusion
In the UK and many Commonwealth countries, the spelling is “amortisation.” In the US, it’s “amortization.” Same concept, different spelling. If you see both in a single document, someone’s mixing style guides.
Don’t confuse amortisation with depreciation — amortisation applies to intangible assets and loans, while depreciation applies to physical assets.
Source: Financial Accounting Standards Board (FASB), ASC 350 — Intangibles