Definition
Paying off a loan with regular equal payments that cover interest first and gradually reduce the principal to zero.
What it means
Amortization is the schedule that spreads a loan into equal payments over its term. Each payment pays the interest that built up that month, and the rest lowers the principal. Because interest is charged on the remaining balance, the interest part shrinks over time and the principal part grows. An amortization table lists every payment, the split between interest and principal, and the balance afterward. Mortgages, auto loans and most personal and student loans are amortizing loans. A shorter term means higher payments but much less total interest. Extra principal payments skip ahead in the schedule. Some loans are not fully amortizing, such as interest-only loans or loans with a balloon payment, and the CFPB's Loan Estimate flags these features on mortgages.
Example
A $300,000 loan at 6% costs about $347,500 in total interest over 30 years (payment about $1,799), but about $141,200 over 15 years at 5.5% (payment about $2,451).
Illustrative numbers only. Your situation will differ.