What does amortization refer to?

Amortization specifically refers to the process of gradually reducing a debt over time through a series of scheduled payments. This includes both principal and interest components. Each payment contributes to decreasing the total balance owed until the debt is fully repaid by the end of the loan term. This concept is commonly applied to loans, such as mortgages and car loans, where borrowers make regular payments that systematically reduce their outstanding liability.

The other options do not capture the essence of amortization. For example, converting cash to assets pertains to investment activities rather than debt management. The increase of capital over time relates to growth or appreciation in investment value, not the repayment of borrowed funds. The total interest paid over the life of a loan may be a factor considered in amortization but does not encompass the full definition, as amortization is fundamentally about the reduction of principal and managing debt over time through structured payments.