What does fully amortized mean for a loan?

When discussing a fully amortized loan, the focus is on how payments are structured over the course of the loan term. A fully amortized loan means that the borrower makes regular payments that cover both the principal and interest, leading to the loan being completely paid off by the end of the term. Therefore, the balance reaching zero at the conclusion of the loan period is the defining characteristic of a fully amortized loan.

In contrast, a lump-sum payment at the end reflects a different type of loan structure, where the principal is not gradually paid down but instead repaid in a single payment, which is not amortized. While maintaining a constant interest rate and paying interest only throughout the loan term are features that could apply to various types of loans, they do not specifically define a fully amortized loan. Therefore, the correct choice emphasizes that all money owed will be settled by the end of the loan term, which encapsulates the essence of a fully amortized loan perfectly.