lender may require the borrower to repay parts of the loan amount over time. The process of paying off a loan by making regular principal reductions is called
amortizing the loan
pay interest plus some fixed amount
common with medium term business loans
most common (cars and homes)- borrower makes a single fixed payment every period
- Ex: 5 yr 9% $5,000 loan
- 5,000 = C * (1-1/1.095)/.09
- = C * (1-.6499)/.09
- C= 5,000/3.8897
- = 1,285.46