Amortization is the process of distributing time into a lasting value and is often used to speak of depreciation in economic terms.
For finance and economics, we speak of amortization when a value or cost is distributed over a certain period of time, often with the purpose of reducing its impact on the general economy.
When referring to amortization, it can be either an asset or a liability for finances. Whatever the case, in both circumstances the objective is to distribute a usually large value over a duration of several periods or periods of time, because the possibility is contemplated that this will spread the value and the economy should not suffer despite the high cost. .
The typical case of amortization of a passive security is the return of a loan or a bank credit obtained in order to acquire a certain good or product. Often times, the amount of money borrowed is repaid in different instances (for example, monthly) of time, in which a portion of interest is often included. The amortization would be in this case the part of capital that is canceled with each payment.
There are different amortization methods. For example, him french system, which imposes a fixed fee and the convenient calculation of interests that will be added to the principal. At american system, there is a single amortization that takes place at the end of the period, at which time only interest is paid. The German, on the other hand, it proposes a fixed capital amortization, which causes interest to decrease.
For the amortization of assets, on the other hand, various arimetic techniques are used that distribute the amount or value to be amortized in a different number of installments in various periods.
Other known types of amortization are amortization according to tables, constant or fixed quota, degressive with constant percentage, by sum of digits, by decreasing arithmetic progression, variable, accelerated, free and other alternatives.
