While availing of any type of credit, whether it is a personal loan or home loan, secured or unsecured loan, the borrower needs to repay the amount to the lender in full. However, there is a structure and process to repay the outstanding loan amount, which every borrower needs to follow. Failing to follow or adhere to the process, you need to pay additional fees as a penalty.
Let’s understand in detail.
The loan repayment is a process to repay the loan taken back to the lender within the specified period of time, as per the terms mentioned in the loan agreement. The repayments are made in the form of EMI (Equated Monthly Installment) that includes both principal and interest components, paid over a predefined number of months known as loan tenure. The EMI may also comprise of other small components such as insurance and service charges, as per the agreed upon terms and conditions.
In a loan, the interest component is the most crucial part, which you need to pay timely and the amount is calculated on the outstanding loan amount.
For example, until you start the repayment of the principal loan amount, you need to pay the interest amount on the borrowed amount.
When you take out a loan, you are required to pay it back to the lender within a specified period of time. The repayment includes both the principal amount along with the interest over a predefined number of monthly installments.
Simply put, the act of repaying the loan through a series of scheduled payments generally referred to as EMIs that includes both the principal amount outstanding and the interest component is known as the Repayment Schedule. It is also called an Amortization Table.
The repayment schedule of the loan is outlined in the Amortization Table that is shared by the lender with the borrower. This table is typically determined by a loan amortization calculator. The borrower is able to check how much of the monthly EMI is being allocated towards the repayment of the principal outstanding and interest respectively, depending on the rate of interest and tenure of the loan.
Generally, you will notice the following information in your Repayment Schedule:
The Loan Repayment Schedule is an important document for the borrower because:
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