Loan Amortization Schedule: Dollar Amount of Interest Paid

B

In a typical loan amortization schedule, the dollar amount of interest paid each period depends on the interest rate, the loan amount, and the term of the loan. The schedule outlines the repayment of the loan over time, and it specifies the amount of each payment that goes toward the principal balance and the amount that goes toward the interest.

Option A: Increases with each payment This option is incorrect. In a typical loan amortization schedule, the amount of interest paid decreases with each payment. This is because each payment reduces the outstanding loan balance, which means that the interest charged on the remaining balance is lower.

Option B: Decreases with each payment This option is correct. In a typical loan amortization schedule, the amount of interest paid decreases with each payment. This is because each payment reduces the outstanding loan balance, which means that the interest charged on the remaining balance is lower. The amount of each payment that goes toward the principal balance increases over time, while the amount that goes toward interest decreases.

Option C: Remains constant with each payment This option is incorrect. In a typical loan amortization schedule, the amount of interest paid decreases with each payment. The total payment amount remains constant, but the portion of the payment that goes toward the principal balance increases over time, while the portion that goes toward interest decreases.

Option D: Any one of these can be the case This option is incorrect. The amount of interest paid each period in a typical loan amortization schedule follows a specific pattern, which is that it decreases with each payment. It is not possible for the amount of interest paid to increase with each payment or remain constant with each payment in a typical loan amortization schedule.

In summary, the correct answer is B. The dollar amount of interest paid each period in a typical loan amortization schedule decreases with each payment.