In amortized loans, when comparing the first few payments to the last few payments, under most circumstances which portion of the loan will be comparatively larger at the beginning of the loan vs. the end of the loan?

Question

Business

Adam Tran

13 October, 09:17

In amortized loans, when comparing the first few payments to the last few payments, under most circumstances which portion of the loan will be comparatively larger at the beginning of the loan vs. the end of the loan?

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Answers (2)

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Orlando Combs · Answer 1

Answer

Hence, the proportion of the installment that goes for interest payment is larger at the the begining of the loan period than at the end.

Explanation:

At the beginning the loan balance is usually is still large, hence the interest payments would be larger. This is so because the interest payment is calculated by multiplying the interest rate by a big principal balance.

Towards the end of the loan period, when a significant portion of the loan principal balance would have be paid off, the interest payments are usually smaller. This is so because the interest rate is multiplied by a smaller principal balance.

Hence, the proportion of the installment that goes for interest payment is larger at the the begining of the loan period than at the end.

Tess · Answer 2

The interest portion of the loan

Explanation:

An amortized loan is a type of loan where the payment is scheduled in a periodic manner which applied to both the principal and interest. In an amortized loan, the payment of the relevant interest expense first paid off for the period, and then the remainder of the payment reduces the principal rate.

Therefore the interest portion of the loan will be comparatively larger at the beginning of the loan payment.