What is An Outstanding Loan Amount?

When you borrow a loan, you must repay it to the lender with interest in equated monthly instalments. If you are in the middle of your tenure, you must wonder how much you have paid and still need to pay to become debt-free. The amount you still owe to the lender is called the outstanding amount. Read on to learn what outstanding amount in loan is, its calculation, importance, management, and other crucial information.

Meaning of Outstanding Loan Amount

Understanding the meaning of the outstanding loan amount is crucial for efficient loan management. It is the remaining balance you still owe on a loan. As you repay the loan EMIs, your outstanding loan amount decreases and you move closer to complete repayment. Therefore, careful management is essential for achieving financial freedom and ensuring stability.

How Outstanding Loan Amount is Calculated?

Use this mathematical formula to learn how to check outstanding loan amount:

B=A (1+r)^n − p/r [(1+r)^n −1]

Here,

B = Balance Amount

A = Loan Amount

P = Payment Amount

r = Rate of Interest (compounded)

n = Number of time periods

For instance, if you borrow a Personal Loan of Rs 2 Lakh at a Personal Loan interest rate of 19% per annum, your outstanding loan amount after three years will be approximately Rs 2,45,679. You can use online loan calculators to calculate the outstanding amount by entering a few details.

Also Read: What Is a Loan Principal and Why Is It Important?

Why It’s Important to Monitor Your Outstanding Loan Amount?

Monitoring your outstanding loan amount provides information about your debt balance, supporting effective planning. Here are a few key reasons to monitor its balance:

• Efficient Financial Planning: You can accurately allocate your budget to avoid financial strain and ensure timely payments.
• Avoid Late Payments: By keeping track of your upcoming payments and exact balance, you can avoid penalties and safeguard your credit score.
• Identify Discrepancies: Monitoring your outstanding amount helps you identify errors or discrepancies and rectify them in time.
• Decide Upon Loan Refinancing: When planning for a loan refinancing, you can use the loan balance to compare interest rates and calculate savings.
• Plan Early Repayment: With precise information about your loan balance, you can efficiently plan for an early repayment and save interest outgo.
• Maintain Credit Health: Monitoring outstanding loan amounts and repaying them on time positively impacts your credit score.

Managing Your Outstanding Loan Amount

Once you calculate it, here are a few tips to manage your outstanding loan amount:

• Set Up Automatic Payments: Setting up automatic payments ensures you pay them on time without remembering the due dates. It avoids missing deadlines and keeps your credit score in good health.
• Pay High-Interest Debt First: If you have multiple loans, prioritise paying high-interest debt to reduce the interest burden and save money in the longer term.
• Negotiate Payment Terms: If you are having trouble keeping up with the payments, contact your lender to negotiate the payment terms.
• Track Your Expenses: Monitor your spending habits to identify expenses you can cut back. This will help you allocate more money to clear your outstanding amount and avoid financial strain.
• Make Pre-Payments: Make pre-payments whenever possible to reduce the outstanding balance and prevent it from growing further.

Also Read: What is Loan Repayment and Why is this Important

How to Reduce Your Outstanding Loan Amount?

Here are a few ways to selectively reduce your outstanding loan amount:

• Prepay whenever possible
• Consolidate debt
• Use your savings to repay the debt
• Opt for a suitable repayment tenure
• Look for a loan with a lower Personal Loan interest rate

What are the Differences Between the Outstanding Amount and the Statement Balance?

Now that you know what the outstanding loan amount means, don't confuse it with a statement balance. Here are a few points of difference between the two:

Conclusion

Monitoring the outstanding loan amount is crucial for stabilising your finances, both for individuals and businesses. Timely payments and proactive steps are essential to controlling your financial situation. Once you borrow a Personal Loan, manage its outstanding amount effectively to avoid unnecessary fees and improve your cash flow and credit health.

Also Read: Overdue Payments: How To Clear Overdue Payments with a Personal Loan?

Frequently Asked Questions

1. What is the meaning of outstanding money?

Outstanding money refers to the outstanding amount you still owe to the lender.

2.Is outstanding balance good or bad?

Repaying the outstanding amount on time is good while retaining it for a long period is bad.

3. What is an example of an outstanding amount?

If you borrow a Personal Loan of Rs 2 Lakh and repay Rs 1 Lakh, the outstanding balance will be Rs 1 Lakh. In addition, the outstanding balance also includes the payable interest amount.

4. Is it good to pay the outstanding balance?

Paying the outstanding loan amount is good to reduce the debt burden and save money on penalties.