Amortising Loan
Short definition
An amortising loan repays principal in instalments over the tenor (equal principal or annuity). Period debt service is higher than a bullet; the wall at final maturity is lower.
Detailed explanation
Equal principal cuts interest on a declining balance, so instalments fall. An annuity keeps the instalment fixed and shifts the interest/principal mix. Both inflate the DSCR denominator in early years and cut the stock of debt that CFADS can carry.
Prepayment fees and fixed versus floating shift the cash profile. Project finance sculpts amortisation to CFADS.
Why it matters for the CFO
The same CFADS supports a smaller stock of debt if the loan amortises than if it is a bullet. An average DSCR that hides year 1 will miss the covenant.
How to read it
Year-1 service / opening debt reveals the structure. A high ratio is conservative principal; a low ratio is interest-only or a balloon.
Numerical example
189 mn TL, 5-year equal principal, year-1 interest 40%: principal 37.8 + interest 75.6 ≈ 113 mn TL year-1 service.
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Definitions are educational. They are not investment, credit or tax advice.