Amortization

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Amortization has different meanings for loan payments and taxes. Amortization for loans refers to separating the payments for the loan principal and interest into periodic payments to where the loan is paid off at a specified time. Amortization is used for mortgages, car loans, and other personal loans where individuals normally have a basic monthly payment for a certain amount of years. 

For tax and accounting purposes, amortization refers to the strategy of steadily writing off capital expenses a business incurs from an asset to match the revenues the asset produces. This has the effect of reducing the stated income of the business which reduces its tax obligations.

[Last updated in June of 2021 by the Wex Definitions Team]