What is what does it mean that auto loans are amortized?

Auto loans are typically amortized loans, which means the borrower pays off the loan in regular installments over a set period. Each payment includes both principal (the original loan amount) and interest.

Here's a breakdown:

• Gradual Paydown: Amortization involves gradually paying down the loan balance over time.
• Fixed Payments: Usually, auto loan payments are fixed, making budgeting easier.
• Early Payments: In the beginning, a larger portion of each payment goes towards interest, and a smaller portion goes towards the principal. As time passes, this shifts, and more of each payment goes towards the principal.
• Amortization Schedule: A table called an amortization schedule shows the breakdown of each payment, indicating how much goes to principal and how much goes to interest, as well as the remaining loan balance after each payment.
• Calculating Payments: The payments are calculated based on the loan amount, interest rate, and loan term. This calculation uses a specific formula to ensure the loan is fully paid off by the end of the term.