Definition of "Amortization"

The reduction of a debt through periodic repayments of interest and principal sufficient to pay off a loan by maturity. In accounting amortization gradually reduces the cost value of a limited life or intangible asset through periodic charges to income.

An accounting procedure that gradually decreases the book value of an intangible asset through periodic charges to income. For fixed assets, the term used is depreciation, and for wasting assets, it is depletion. Both terms mean essentially the same thing as amortization. The purpose of amortization is to reflect resale or redemption value.

For loan purposes, the systematic process by which a lender calculates loan payments so as to liquidate a debt over time. Payments are made at specific time intervals to reduce the outstanding debt to zero at the end of the loan period.