What is a key characteristic of amortization?

Amortization is fundamentally about spreading the repayment of a loan or debt over time, and a key characteristic of this process is that it involves the repayment of both the principal amount borrowed and the interest accrued in fixed amounts over specified intervals, typically monthly. This means that borrowers know exactly how much they need to pay at each installment throughout the life of the loan, which makes it easier for budgeting and financial planning. This structured repayment process contrasts with methods such as revolving credit, where the payment amounts can vary, or investments in the stock market, which do not follow an amortization schedule. Variable interest rates also do not align with the core concept of traditional amortization, which typically utilizes fixed rates for consistent payment amounts.