When the amount of principal owed on a loan decreases, it is called amortization. Amortization refers to the process of reducing the principal balance of a loan over time through regular payments. Each payment made on a loan typically consists of both principal (the original amount borrowed) and interest (the cost of borrowing the money). As payments are made, a portion goes towards paying off the principal balance, leading to a decrease in the amount owed.
In the context of the options given in the question:
- A. Note reduction: This term is not commonly used in finance to describe a decrease in the principal owed on a loan.
- B. Payment number: This term does not specifically refer to a decrease in the principal amount owed.
- C. Unpaid balance: While this term is related to the amount still owed on a loan, it does not specifically indicate a decrease in the principal balance.
- D. Amortization: This is the correct term that describes the decrease in the principal amount owed on a loan over time through regular payments.
Therefore, the correct answer to the question is D. Amortization.
