With loans that have equal periodic instalment payments, the interest portion of the payment___ each period as the principal portion of the payment ___.
A) decreases, decreases
B) increases, increases
C) increases, decreases
D) decreases, increases

Question

With loans that have equal periodic instalment payments, the interest portion of the payment___ each period as the principal portion of the payment ___. 
A) decreases, decreases
B) increases, increases
C) increases, decreases
D) decreases, increases

Quizplus · Accepted Answer

In loans with equal periodic installment payments (amortizing loans), as the borrower pays off the principal over time, the interest portion of each payment decreases because it's calculated on a reducing balance. Consequently, the principal portion of each payment increases, allowing the borrower to pay off the loan by the end of its term.

With Loans That Have Equal Periodic Instalment Payments, the Interest