A periodic payment plan to pay a debt in which the interest and a portion of the principal are included in each payment by an established mathematical formula. most commonly it is used on a real property loan or financing of an automobile or other purchase. by figuring the interest on the declining principal and the number of years of the loan, the monthly payments are averaged and determined. since the main portion of the early payments is interest, the principal does not decline rapidly until the latter stages of the loan term. if the amortization leaves a principal balance at the close of the time for repayment, this final lump sum is called a “balloon” payment.