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Amortization

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Amortization

  1. 1. Loans and More: Part 1If you are looking to get a loan, be it for a car, a home or cash for your business you have come to theright place. Before we get started we need to nail down some of the terminology. Depreciation is thefirst one to speak of. Depreciation refers to prorating an assets cost over the life of that particular asset.An example of this would be an apartment building can be used and rented for a given amount of yearsbefore it gets to the point of when it is used and abused. Depletion is how natural resources areallocated over a period of time.Amortization refers to allocating the cost of an intangible asset over its lifespan. Anexample of this would be a personal computer or laptop usually has a lifespan of about3 years. Basically amortization refers to spreading payments over a period of time,such as years. We are talking about this in the context of the United States, whereas incountries such as Canada, the words amortization and depletion are sometimes usedinterchangeably.The majority of the time you are dealing with a loan, it is an amortized loan – it is some amount ofmoney that you receive from a funding source, such as the bank. It is the type of loan that you are goingto pay off over a given period of time.A few tips when dealing with loan payments:  Always be sure that the amount of money that you make is greater than the loan amount  Always accrue the loan amount every time that you get paid each week or pay periodIf you do default on a loan, there are many options to get on good terms with the bank. What you doneed to remember is that the bank always wants you to pay them back, and they are always willing towork out a deal. With what is going on in the economy you are lucky to be given a loan in the first place,so also remember that the bank is definitely willing to repossess the asset, immediately. For instance, ifyou do default on a car loan depending on your credit score and the lending agency if you find that amonth or two goes by and you have missed the payment on your amortization schedule, you might findthat the “repo man” comes knocking on your door.Hope this explains some of the terminology that goes along with loans as well as some of the basicconcepts that are associated with it. If you have any questions, please be sure to check out our website.

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