In financial terms, what is "amortization" generally referring to?

Amortization refers to the gradual repayment of a loan over time, typically through fixed, periodic payments. These payments often cover both the principal amount borrowed and the interest accrued. This systematic approach allows borrowers to predict their payment schedule and manage their finances more effectively. Over the life of the loan, a larger portion of each payment initially goes toward interest, while a larger proportion eventually goes towards reducing the principal as the outstanding balance decreases.

In contrast, other options deal with different financial concepts. Selling an asset involves transferring ownership of that asset for cash or other consideration, which does not relate to loan repayment. The initial funding of a startup business pertains to capital raising rather than loan management and does not involve amortization. Lastly, calculating interest on a loan focuses solely on the cost of borrowing and may not factor in the structured repayment schedule that amortization entails. By understanding amortization, one can effectively manage loan liabilities and anticipate financial commitments over time.