What Does outstanding balance Mean
Balance is a concept that can be used to name the conclusion that is obtained from an analysis or the result of an account or a calculation. In terms of accounting , balance is called the difference existing between the income ( have ) and expenses (the must ).
Insolute , meanwhile, is a term that comes from the Latin insolūtus and refers to what has not yet been paid .
The idea of unpaid balance , in this way, appears when a certain type of loan or credit is requested . In this class of operations, a person or entity asks for money from a bank, which delivers said money charging interest . The one who requests the loan, therefore, contracts a debt with the bank that must be paid within a set period.
It can be said that when an individual contracts a loan, the amount requested becomes the original debt . Each loan installment that the subject pays includes the return of the capital plus the interest charged by the bank : thus the original debt is reduced with each installment, and the corresponding interest is paid simultaneously (which is recalculated after each payment) .
The unpaid balance , in short, is the amount that has not yet been paid of the original debt . If a person applied for a loan of $ 100,000 and has repaid $ 75,000 , the unpaid balance is $ 25,000 .
It is important to note that there are loans whose interest is estimated according to the amount currently owed and others that are based on the original debt. The calculation of the interest of the first must be carried out month by month, by multiplying the interest rate by the unpaid balance .
For this reason, the more we have paid of our original debt, the lower the amount of interest that we will have to face. It is very important to know before contracting a loan if the institution that will transfer it to us charges interest on the unpaid balance or based on the amount requested, and then make the decision that best suits us, according to our possibilities and the regularity with which we know that we will be able to make the payment of the fees.
Some institutions offer us the opportunity to advance payments whenever we have extra money, and this can only be beneficial , since it further reduces the interest we will pay in the future: if we have the money to pay two installments, for example, we will ignore the corresponding interest to the next one to arrive directly at an inevitably lower one. In any case, it is important to point out that not all companies allow us to carry out operations of these characteristics , so we must always ask beforehand.
If indeed entity lender gives us the opportunity to pay more money corresponding to a single share, then it is also likely that we can pay off the remaining debt into one payment . It is not something very usual, but it is good to have this benefit, since in many contracts a penalty is foreseen for any advance of balance.
In the interest and commissions policy of each company hides the answer to "what type of loan is the most convenient", if the one that carries the payment of interest on the unpaid balance or the one in which they are calculated on the initial debt. For example, to balance the benefits of the first type, late payments translate into high commissions and, consequently, an increase in interest; In short, we should only opt for this modality if we are sure of being able to comply with the deadlines stipulated in the contract.