What is a Fully Amortized Loan?

What is a Fully Amortized Loan?

A fully amortized loan is a type of loan that is paid off completely over its term through scheduled, regular payments that cover both the principal amount borrowed and the interest. This ensures that by the end of the loan term, the borrower has repaid the entire loan amount and owns the asset free and clear. The payments are usually equal in amount and made monthly, gradually reducing the principal while covering the interest expense. Mortgages and some types of personal and auto loans can be fully amortized, contrasting with interest-only or balloon payment loans where the full principal balance is due at the end of the term or periods exist where only interest is paid.

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