What is Loan Repayment?
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.
What is Loan Repayment and How does it Work?
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.
What is 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:
- Loan Information: When you use the loan amortization calculator, you will be able to enter information like the total loan amount, tenure of the loan and the rate of interest. The amortization calculations are based on these factors.
- Payment Frequency: The first column of your Repayment Schedule lists the frequency at which you will have to make payments to your lender. Generally, the most common format is a monthly payment cycle.
- Total Payment: The total monthly EMI that is payable by the borrower is calculated under this column. You may also use a personal loan calculator to arrive at this figure.
- Extra Payment: If the borrower has access to more funds and decides to make an excess payment towards the loan account that is more than the allocated EMI figure, the loan amortization calculator automatically applies the additional amount paid towards the principal loan. All future interest payments on the loan will be recalculated and the updated balance will be listed under this section in the Repayment Schedule. Please note that this is not applicable for personal loans.
- Principal Repayment: The amount that is allocated towards paying off the principal loan amount on a monthly basis is displayed under the Principal Repayment column in the Repayment Schedule. Generally, you will find the figure increasing over the tenure of the loan.
- Interest Costs: The interest payment being made on a monthly basis is tracked under this column of the amortization table. You will observe that the interest payments per month will decrease over the life of an amortized loan.
- Outstanding Balance: Your outstanding balance on the loan post making a scheduled payment is calculated under this column. This can be done by subtracting the principal component paid in each period from the current outstanding loan balance.
Why is Loan Repayment Schedule Important?
The Loan Repayment Schedule is an important document for the borrower because:
- It helps borrowers understand their loan repayment by breaking down the balance into equal monthly repayments or EMIs.
- The borrower can keep track of the money that is being paid towards the interest and principal components respectively.
- It also updates the outstanding balance on the loan post making each individual monthly payment.
- The Repayment Schedule also helps borrowers to calculate the total interest payable on the loan if any additional payment that is more than the EMI amount has been paid towards the loan account.
- This is especially useful for mortgage loans where a part payment is often accepted.
- Lastly, the amortization table aids in the calculation of the total interest paid annually which is useful for claiming income tax benefits on specific loan products such as home loans.
Fullerton India offers a range of financial products including business, mortgage and personal loans.
How to Apply for a Personal Loan?
With minimal paperwork, you can easily apply for a personal loan online. Start by checking your eligibility.
- Personal Loan Eligibility: You can check your eligibility by checking the various criteria and also use the personal loan eligibility calculator to estimate the maximum loan amount you may be eligible for.
- Online Documentation: Upload soft copies of all the required documents along with filling up the online loan application form.
- The Loan Application Process: Follow the steps as given below to make your loan application on Fullerton India:
- Click on the “Apply now” button on this page
- Select “Personal Loan” and enter your mobile number for OTP verification.
- Fill in all relevant personal, employment and financial related information
- Choose the required loan amount, desired interest rate and convenient repayment tenure
- Upload soft copies of your documents
- Click on ‘Apply Now’
Based on the information provided, instant decisions will allow you to know whether your application will be taken forward for processing. After successful verification checks of all the information and documents, a representative will get in touch with you to discuss the terms of the loan. After receiving your confirmation of the same, your loan will get approved and the amount will be disbursed into your bank account within a few hours.