Afdrag

Afdrag is a Danish financial term that refers to the portion of a loan payment that reduces the outstanding principal. In most loan agreements, a regular payment is split into two parts: interest (rente) and afdrag. The afdrag lowers the remaining loan balance, while the interest covers the cost of borrowing on the current balance.

In practice, the structure of afdrag depends on the loan type. With a fixed-rate annuity loan (annuittetslån), each payment is the same amount, but the share going to afdrag grows over time as the interest portion declines. With a linear amortization plan (lineært afdrag), a constant amount of principal is paid each period, causing total payments to decrease over time as interest falls.

Afdrag is commonly applied to mortgages (boliglån), car loans, and other forms of consumer credit. It is a core concept in amortization schedules, which outline how much of each payment reduces the principal versus how much covers interest. Some loans also offer afdragsfrihed (a grace period) during which only interest is paid, and no principal is reduced.

It is important to distinguish afdrag from depreciation; in Danish accounting, afdrag refers to loan repayments, while depreciation is described by the term afskrivning.

Etymology: the word derives from the prefix af- (off, away) and drag (pull), conveying the idea of drawing down the principal. See also rente, amortisation, and amortization schedules.