AMORTIZATION Car loans are often spread into multiple regular payments over time. This process is called amortization. Each payment reduces the remaining principal, and the interest accrued for the next payment is based on the reduced principal. The monthly payment is fixed; so, with each subsequent payment, an increasing portion goes toward principal, and a decreasing portion goes toward interest. Lori takes out a car loan of $15,000 for 3 years, with a 3% interest rate. When the loan is amortized into monthly payments, the total interest paid by the end of the loan term will be $704.