In a typical loan agreement, the borrowed sum is returned to the bank or the non-bank lender over a fixed period. The amount that is repaid to the lender, mostly through equated monthly installments, includes the principal amount and also the accrued interest on the outstanding balance. But what is an outstanding balance?
Outstanding balance is the amount a borrower is obliged to pay on any debt that incurs interest. Simply speaking, it means the amount that is left to be repaid on any loan. Once the loan amount is credited to the borrower’s bank account, the outstanding balance usually increases everyday with accrued interest, until the due date. On the due date, if the borrower clears the monthly installment, the outstanding loan balance falls by the precise sum.
In some cases, the outstanding loan balance can be different from the payoff amount, which is the amount to be paid to completely clear off the loan prior its due date. This is because the interest on a loan left to be paid is added on a daily basis. So, the loan balance also changes on a daily basis. It includes three important components:
• Remaining Principal Loan Amount:
It is the total amount that is borrowed from the bank. Once the borrower starts repaying the EMI, the principal amount decreases month after month. If the borrower delays the payment of a monthly installment, the overdue principal gets included in the remaining principal.
• Overdue Interest:
It is the due amount of interest which has not yet been paid.
• Accrued Interest:
It is equal to the interest calculated daily since the last due date of the borrower. It is a small amount and though calculated on a daily basis, it is mostly charged once per month and is to be paid with the monthly installment.
For credit cards, the outstanding balance or the current balance is the balance amount an individual owes on any transactions made through a credit card. It includes purchases, cash advances, balance transfers, interest charges and other additional fees charged by the credit card service provider.
Effect Of An Outstanding Loan or Credit Card Balance
Usually, the outstanding balance on an ongoing loan is an impartial term meaning the total pending amount. But rolling the remaining balance of a past-due amount is definitely not worth the deal since larger outstanding obligations get reflected on credit reports and dramatically affects the credit score for an extended period.
Since about 30% of the score is based on the debt amount a borrower owes at a given date, a larger outstanding debt of a past loan lowers the CIBIL score, or the credit score. This, in turn, affects the loan eligibility for future loans. It may also have a subsequent impact on loan interest rates offered by banks. It must be noted that the outstanding amount on a credit card has no effect on a loan application with a bank, unless one has defaulted on credit card bill payment.
In case a borrower is in a better position to pay off the outstanding balance earlier, they should first contact the lender. This is because if they have the agreement with a variable rate of interest, there may be an additional fee that they may have to pay to clear the loan.
Finding The Outstanding Balance amount
To manage finances efficiently it is advisable to keep a track of the loan status. Most banks and financial institutions have online loan portals to view the loan status. Borrowers can log into the bank website using their credentials. Next, they must provide the information as asked to view the loan outstanding details. Another way to know the outstanding balance is to contact the customer advisor of the bank to have an idea of how much is left to be paid.
For credit cards, in most cases, the credit card companies assign specific spending limits on cards. To know how much money is left to be spent, one needs to subtract the outstanding credit card balance from the total credit limit.
Conclusion
The need to know about the outstanding loan balance can arise in case of any type of loan such as a gold loan, home loan, commercial loan, car loan as well as a business loan. For both borrower and lender, the outstanding balance is the unpaid balance of a loan portfolio that charges interest. It is a key aspect of the loan because rolling EMI payments repeatedly is reflected on the credit report and can bring down the CIBIL score.
While taking out a loan, however, borrowers should approach only reputed and regulated lenders like IIFL Finance to get good customer service and avoid any hassles. Be it for home renovation or any personal or business purpose, loans from IIFL Finance can be taken to cope with any type of financial requirement. For an informed decision applicants can check their eligibility using the online eligibility tool without affecting their credit score.
