Which One Of These Loans Meets The Definition Of An Amortized Loan?

To identify which loan meets the definition of an amortized loan, we need to understand what an amortized loan is. An amortized loan is a type of loan that is repaid in equal periodic payments, which include both principal and interest components. Over the course of the loan term, the proportion of each payment that goes towards paying off the principal gradually increases, while the portion allocated to interest decreases.

Out of the options provided, the loan that meets the definition of an amortized loan is:

• Home Loan: Home loans, such as mortgages, are typically structured as amortized loans. Each monthly payment made towards a mortgage includes both principal and interest, with the proportion of the payment allocated to interest decreasing over time as the outstanding principal balance decreases.

Other types of loans, such as payday loans or title loans, typically have different repayment structures and may not be amortized loans. These loans often have short terms and may require a lump sum payment of the full principal plus interest at the end of the term, rather than equal periodic payments.