What characterizes a fully amortized loan?

A fully amortized loan is characterized by the fact that it is designed to be paid off completely by the end of its term through regular monthly payments of principal and interest. This means that at the conclusion of the loan term, the borrower will have repaid the entire amount borrowed, which is the hallmark of amortization. Each payment reduces the principal balance while also covering the interest expense, ultimately resulting in a zero balance at the maturity of the loan.

In contrast, other types of loans may include features such as balloon payments, which require a significant final payment at the end of the term, or may allow for only interest payments during the loan period without reducing the principal. Furthermore, while a partially amortized loan may have lower monthly payments than a fully amortized loan, this is not a defining characteristic of full amortization itself. The key takeaway is that a fully amortized loan is fully paid off at the end of its defined term.