| Period | Payment | Principal | Interest | Balance |
|---|
Amortized Loans
The most common loan type with regular payments spread over the loan term. Each payment covers both principal and interest, with more going toward principal as the loan matures. Examples include mortgages, auto loans, and personal loans.
Formula: PMT = P × [r(1+r)^n] / [(1+r)^n - 1]
Deferred Payment Loans
Loans where the borrower receives money upfront but makes a single lump-sum payment at maturity. Interest accrues over the term, and the borrower pays back principal plus all accumulated interest at once.
Formula: FV = PV × (1 + r)^n
Bonds
Debt securities where investors lend money to issuers (governments, corporations). Bonds pay periodic interest (coupons) and return the face value at maturity. The yield represents the effective return based on purchase price.
YTM Formula: Complex calculation considering coupon payments, face value, price, and time to maturity.
Secured vs Unsecured
Secured loans require collateral (home, car) that lenders can seize if you default. They typically offer lower rates.
Unsecured loans don't require collateral but rely on creditworthiness. They usually have higher rates and stricter qualification requirements.