An amortized loan may have equal or increasing amounts applied to the principal from each loan payment. This means that with each payment, a portion goes towards paying off the principal amount of the loan in addition to the interest. The amount applied to the principal gradually increases over time, leading to a decrease in the amount of interest paid and a quicker repayment of the loan.

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An Amortized Loan

Question 22

Multiple Choice

An amortized loan:

A) requires the principal amount to be repaid in even increments over the life of the loan.
B) may have equal or increasing amounts applied to the principal from each loan payment.
C) requires that all interest be repaid on a monthly basis while the principal is repaid at the end of the loan term.
D) requires that all payments be equal in amount and include both principal and interest.
E) repays both the principal and the interest in one lump sum at the end of the loan term.

Correct Answer: