Repayment or amortization is the term used to describe the repayment of debts.
There are different ways of paying off loan debts.
With an annuity loan, the instalment remains constant throughout the entire loan term. Each instalment contains both an interest and a repayment component. At the beginning, the loan instalment consists mainly of interest, while the share of repayments increases towards the end of the term. This type of repayment is usually known as a monthly rate and is available to all borrowers: both private individuals in the case of a personal loan such as a car loan or mortgage, and self-employed individuals and companies in the case of a business loan.
With this type of amortization, the borrower pays a constant repayment amount throughout the term of the loan, while the interest payments decrease with the remaining loan debt. This results in the loan rate decreasing over time as the remaining debt and the periodic interest decrease with each repayment made. Typically, interest is payable on a quarterly basis and repayments are made annually.
Fixed Loan (Bullet Repayment)
With a fixed rate loan, also known as a bullet repayment or bullet loan, the borrower only pays interest during the entire term of the loan. Repayment of the total loan amount is due at the end of the term. This means that the periodic interest payments remain the same throughout the term.