Amortization Calculation 3

Meaning of Amortization Calculation Part III


Amortization calculation for leasing

The subject of amortization plays a very important role , especially when it comes to leasing . Here one speaks between a full amortization and a partial amortization.

Leasing with full amortization

With this variant, the leasing installments you pay cover the acquisition costs for your leased item. It should be noted that in addition to the purchase price, the lessor also takes into account the financing costs and other costs incurred. As a rule, you cannot cancel the full amortization. So you know exactly that the amortization period goes from the conclusion of the contract to its end and that amortization is only then achieved.

Leasing with partial amortization

With this variant, as the lessee, you will not achieve the amortization of your purchase amount at the end of your contract period. The amortization only takes place in part, in the form of your leasing installments. There is a residual value for you and you have to amortize this after the leasing period.

Mileage contracts

When purchasing company vehicles, the conclusion of mileage contracts can also make sense for you. If you set a certain number of kilometers, you will receive a refund at the end of the term if the agreed kilometers have not been used.

Dealing with surplus proceeds

There is also the variant for you with the distribution of additional proceeds . Specifically, this means that at the end of the term, the leased property will be sold at the best possible price. This can be below or above the residual value that was calculated. If the value corresponds to the calculated value, the amortization is achieved. If the value is higher, then there is a profit. But this is not yours alone. The lessor has a claim of at least 25% here .

What else is the amortization calculation called?

According to, the amortization calculation is also known as the return flow calculation or the return flow method. The pay-off method, the pay-back method or the pay-out method are also used. These terms are derived from the English terms pay off for amortize or pay back to repay.

Amortization calculation for real estate

Most people are only familiar with the terms amortization and amortization calculation from the economic field as part of an investment. But the term amortization also plays an important role when buying real estate. Not so widespread in Germany, but all the more important in neighboring Switzerland. The term amortization is used here for the repayment of real estate financing. Here with us, on the other hand, one speaks more often of repayment. But this also plays an important role for you as an entrepreneur. Of course, when buying commercial buildings, you also need to know how long your payback period will be. This is very easy to say. The higher the repayment, the faster you will have reached the payback time.

The direct amortization

With direct amortization, the installments for the repayment or amortization are paid directly to the bank.

Benefits of direct amortization Disadvantages of direct amortization
Interest charges decrease with each installment paid Interest deductibility decreases by reducing the mortgage debt
Relief of the budget in individual steps The imputed rental value increases and thus increases your income or your profit
Increase in equity Assets tied to real estate
Profit does not depend on the amount of debt

The indirect amortization

With indirect amortization, the mortgage payments are not paid to the bank (always based on the example of Switzerland). Rather, it goes into pillar 3a, which is common in Switzerland. This is a Swiss pension system, which consists of three pillars. Pillar 3a is a private but tied pension.

Advantages of indirect amortization Disadvantages of indirect amortization
You only have to pay tax on the paid-in money at a low rate Interest costs always remain high
The debt interest is always high and can therefore be fully tax deductible The mortgage debt always remains high
A good profit can be made with the money deposited in the retirement account Depending on the type of investment chosen, there may be price fluctuations and thus losses

Criticism of the amortization calculation

The amortization calculation faces two major criticisms. On the one hand, the basis for the calculation is a subtle evaluation of yourself and, on the other hand, it is quite possible that the debit interest does not correspond to the credit interest. The time value of money is not taken into account, making it more difficult for you to consider the risk of the investment with the amortization calculation. For you, therefore, the amortization calculation is an important tool, but is only one component of the investment calculation.

Furthermore, an amortization calculation quickly leads to decisions being made that do not really suit you as an entrepreneur. It is often suggested that a short payback period is less risky for you. In practice, however, one sees again and again that short-term investments in particular can be dangerous.


It is estimated that around 53% of all entrepreneurs use the amortization calculation . This is also due to the fact that an Excel amortization calculation can be carried out quickly and easily. The amortization calculation is a good method, especially for assessing a financial risk and for controlling factors such as liquidity, independence and security. But there are also disadvantages. For this reason, it is highly recommended to use additional methods from the investment calculation.

Amortization Calculation 3