When requesting any type of financing it is important that the person knows all the concepts applied in the process. One of the most common is the unpaid balance.
Not knowing how the outstanding balance of a loan works can significantly affect your experience. Ideally, always choose a financial product that applies interest on the unpaid balance, so that you progressively pay less.
In order to help you better understand this concept, we will explain what it is, how to calculate it and more.
What is unpaid balance?
The unpaid balance is the capital plus the interest that remains to be paid on a loan or the average of a loan portfolio (any term, installment, installment or credit card debt, on which interest is charged), for a period of time, usually one month.
Formula to calculate the outstanding balance
The formula is:
Unpaid balance = Original balance + Interest – Balance paid.
You will need to calculate the nominal or monthly interest, dividing the annual interest by the number of months you will have to pay the loan in installments.
You will put this information in a depreciation table and you will know how much the outstanding balance will be after each payment you make. Credit institutions generally offer this information; Be sure to check.
Interest on outstanding balances
The interest on unpaid balances will depend on the monthly rate applied by the entity, the balance itself and the number of days it has not been paid. This interest becomes effective only if the minimum amount, or more, of the fee is paid on the specified date.
If this is not done, an interest for delinquency is created that affects the overdue fee. It should be noted that this interest on outstanding balances is not charged to the total amount due.
Example of outstanding balance
Suppose you request a loan of $ 250,000 to pay in 12 monthly installments at an interest rate of 28%. Next we will show the amortization table for this case where the unpaid balance will be appreciated.
|Payment||Date||Outstanding balance||Minimum Payment||Capital||Interests|
|one||April 5, 2019||$ 232,777||$ 24,283||$ 17,283||$ 7,000|
|two||May 6, 2019||$ 214,045||$ 24,283||$ 18,672||$ 5,611|
|3||June 5, 2019||$ 194,756||$ 24,283||$ 19,289||$ 4,994|
|4||July 5, 2019||$ 175,018||$ 24,283||$ 19,739||$ 4,544|
|5||August 6, 2019||$ 154,955||$ 24,283||$ 20,063||$ 4,220|
|6||September 4, 2019||$ 134,287||$ 24,283||$ 20,667||$ 3,616|
|7||October 7, 2019||$ 113,451||$ 24,283||$ 20,836||$ 3,447|
|8||November 4, 2019||$ 91,639||$ 24,283||$ 21,812||$ 2,471|
|9||December 4, 2019||$ 69,494||$ 24,283||$ 22,145||$ 2,138|
|10||January 6, 2020||$ 46,995||$ 24,283||$ 22,499||$ 1,784|
|eleven||February 3, 2020||$ 23,735||$ 24,283||$ 23,260||$ 1,023|
|12||March 5, 2020||$ 0||$ 24,307||$ 23,735||$ 572|
|Total =||$ 291,420||$ 250,000||$ 41,420|