What is the outstanding balance of a debt?
Among so many interest and fees, the one with the outstanding balance gets complicated when it comes to understanding how the calculation works and what is increased and decreased in the initial amount of an outstanding debt. Incurring interest on the outstanding balance can be a big nightmare. But with some understanding of how the balance calculation works, it is possible to understand and avoid the incidence of interest.
The outstanding balance is the amount that still has to be paid on a particular debt. This negativity can occur either in loan, financing or even checking account. In the latter case, it occurs when the customer exceeds the available cash value.
How does the outstanding balance work?
Besides being the outstanding debt, it can also be accumulated to the monetary correction if there is no debt settlement. That is, the amount of debt may change over time.
- loan balance;
- Current account balance;
- Financing balance.
Amortization of outstanding balance
Amortization of the outstanding balance is the deduction of an amount from the total cost of service. That is, the repayment of the amortization is the amount of the installment being discounted interest on outstanding debt.
In the Constant Amortization System the debtor is amortized monthly and decreasing. That is, in this system the installation is fixed at a higher value and decreases over the course of payments. However, you need to be aware.
The amount paid monthly refers to both amortization and interest. That is, the full amount that is being paid is not being fully amortized from the total cost of debt, even though some debtors believe otherwise.
- Possibility of settling the debt in less time.
- The debtor is subject to rate change over time.
In the Price system, initially there is more interest on the installments that will be paid and little amortization. That is, the amount being paid refers to additional charges beyond the original value of the service.
This process usually occurs when the outstanding balance is high. However, as the decrease occurs there is a change in the charge. In this case, the debtor begins to pay more amortization and less interest compounding.
- The debtor is not subject to rate change according to the economy.
- Fees are higher because there is no correction and payment is made over longer terms. Which can be a problem for those without financial planning.
In addition to SAC and Price, there are also other amortization systems:
- American System: Monthly payments equivalent to interest and amortization occur in a single payment at the end of a given period;
- One-off payment: amortization at one time, plus interest.
Calculate the outstanding balance
Some mobile sites and apps allow the debtor to have the debt balance calculated for free. On these platforms, you need to be aware of the amount needed to pay off a debt according to the service data used. To assist with your financial reorganization, download the Worksheet: Monthly Financial Planner.