Glossary
Spreading repayment of a loan over a set period with regular payments.
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Spreading repayment of a loan over a set period with regular payments.
Each payment covers interest and principal. Longer amortization lowers the payment but raises total interest.
It shapes monthly cash flow and total cost.
A $50,000 loan amortized over five years has a smaller monthly payment than over three years, but more total interest.
Canadian business loans often have terms shorter than their amortization, with renewal at the end of the term.
When comparing a loan with an advance, convert both to total dollars and monthly payment. Amortization is how the loan side gets its numbers.
A low monthly payment from long amortization can feel cheap and still cost more in total than a shorter, larger payment.
A useful rule is to finance an asset over a period no longer than its useful life. A vehicle expected to last six years suits a shorter amortization than a building improvement expected to last fifteen. Paying for something long after it is worn out drains future cash flow.
Interest-only periods, offered by some lenders, lower payments at the start while a new investment ramps up. They also mean the balance does not fall during that time, so total interest is higher.
When comparing with an advance, build a simple table: amount, monthly payment, number of months and total repaid. The structure with the lowest total is not always best if its payment strains the month.
A Regina dental clinic finances $120,000 of equipment. Over five years the monthly payment is noticeably higher than over seven, but total interest is lower and the loan ends while the equipment is still useful. Over seven years the payment is easier, but the clinic may be paying for equipment it has already replaced. Matching the amortization to the equipment's working life keeps both cash flow and total cost sensible.
Key takeaway: Match the repayment period to the useful life of what you are buying, and compare offers on total dollars as well as monthly payment.
No. They use a fixed payback collected over time.
See the related guides and the comparison pages, or apply and ask.
No. It is educational information, and agreements vary.
Educational information only. It is not legal, tax or accounting advice.
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