Let’s suppose that company A has an outstanding debt of $5 million. If that company repaid $250,000 of that loan every year, it would be said that $250,000 of the debt is being amortised each year. However, company A would also need to pay interest on the loan.
In this case, if we suppose that the interest rate is set at 10%, then company A would actually need to repay $275,000 per year for the debt to be fully amortised.
As another example, let’s say that you had been given ten years to repay $1.5 million in business loans to a bank on a monthly basis. In order to work out your monthly amortisation obligations, you would divide $1.5 million by ten, giving you $150,000 per year.
You would then divide this by 12, giving you $12,500 which you would need to repay each month until the debt was fully amortised. Accounting for a 5% interest rate, your final total to be repaid each month would be $13,125.