Question

Process of loan by installment payments is classified as
A.appreciation of loan
B.amortizing a loan
C.depreciation a loan
D.appreciation of investment

Answer 1

Hint: A loan is the amount of money lent to someone who is in need. The loan amount should be repaid with the principal and interest within a certain period of time. The repayment of the amount with equal money in an equal duration of time is called installment.

Complete step-by-step answer:
All the repayments made by a series of payments, usually in size, made at equal intervals of time for the interest-bearing debts is called amortization of the loan. All the house loans and consumer loans are repaid by the method of amortization of loans.
An amortized loan is a type where the borrower schedules the periodic payments for both the principal and the interest. The payment made through the amortized loan goes toward interest costs and the rest towards your loan balance. An amortized loan pays all the interest expenses for the period of principal. This is applicable before the principal of the loan is paid and reduced.
Therefore, the process of loan by installment process is classified as amortizing a loan.
Hence, option B is the correct answer.

Note: We know that the amortization of loans includes auto loans, house loans, and personal loans. The different types of amortization of loan:
1.Full amortization- In this, the balance of the loan term would be reduced to zero at the end of the loan period.
2.Partial amortization- In this, the principal of the loan is reduced every month, interest-only where the interest remains the same at the end.
3.Negative amortization- In this, the monthly payments increase according to the principal of the loan.