Loan amortization refers to the process of paying off the credits availed via principal and interest throughout the chosen tenor.
On opting for a personal loan, a borrower needs to repay the amount availed in monthly instalments over a certain period, usually up to 60 months. The entire repayment process, comprising factors such as EMIs payable and the principal and interest components of each EMI, can be summarised under a loan amortization schedule.
The word ‘Amortization’ is used in relation to the act of settling a debt over a pre-fixed period by way of instalments.
On opting for a personal loan, every borrower needs to repay the amount borrowed, alongside the interest accrued, over a specified tenor. Loan amortization allows the concerned individual to understand the recurring loan instalments better and how his/her debt is being paid off.
To understand amortization better, it is crucial to have access to a personal loan amortization calculator. Such calculators, often clubbed with personal loan EMI calculators, help users access the amortization schedule applicable to their loans in exchange for information such as loan principal, interest rate and tenor chosen.
A loan amortization table or schedule is a table that depicts the division between the principal and interest component of each EMI paid to settle a loan. Usually, at the beginning of tenor, the interest component of EMIs remain high. Then, as the loan is paid off, the interest component reduces while the principal increases.
As per loan amortization, the interest component of an EMI remains negligible towards the end of a loan’s tenor.
This schedule aids borrowers to plan their repayments better and helps in computing financial benefits while opting for facilities such as balance transfer.
A personal loan amortization chart or table can be understood better with the help of an example.
For a loan of Rs.2 lakh, availed against an interest rate of 12% per annum in 2021 and a tenor of 24 months, the loan amortization schedule will be given as –
|Year||Principal||Interest||Total Payment||Balance||Loan Paid Till Date|
Note: This is an abridged version of an amortization table. Usually, the break-ups are provided for each instalment paid.
Every borrower must keep this table handy and calculate the schedule at the outset of applying for a personal loan using an amortization calculate to better understand EMI payments.