Understanding loan amortisation is very important as it helps you to keep track of the loan repayment. By analysing the loan amortisation schedule you will be able to understand how much amount you have paid towards interest and principal. The EMI amount paid by you includes the amount paid against the interest as well as the principal. Let’s discuss some of the common FAQs on Loan amortisation.
Table of contents
- What is Loan Amortisation?
- How Does Loan Amortisation Work?
- What is the Loan Term?
- How is Interest Calculated in Amortisation?
- Can I Make Prepayments on My Loan?
- What is the EMI (Equated Monthly Installment)?
- What Happens if I Miss an EMI Payment?
- Can I Change the EMI Amount or Frequency?
- What is Loan Forgiveness?
- How Can I Track my Loan Amortisation Schedule?
- Is Loan Amortisation the Same for Fixed and Floating Interest Rates?
- How Will Loan Amortisation Work if I Refinance My Education Loan?
What is Loan Amortisation?
Loan amortisation refers to the gradual repayment of a loan through scheduled, periodic payments over time. Each payment consists of both principal and interest components. When you pay your monthly EMI, it includes the amount paid against interest and the amount paid against the principal. In the initial days, a major part of your EMI amount is paid towards the interest amount.
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How Does Loan Amortisation Work?
The amortisation process involves dividing the total loan amount into equal instalments. As time progresses, the proportion of the payment allocated to principal and interest changes. In the later stage of the repayment period, the major amount of the EMI is paid against the principal of the loan.
What is the Loan Term?
The loan term is the duration over which the loan is repaid. Longer terms result in smaller monthly payments but higher overall interest payments. You can make part payments in order to save the money that will be paid towards the interest amount. This will also help you to close the loan early.
How is Interest Calculated in Amortisation?
The Interest amount on your education loan or any other loan is calculated on the remaining principal balance. As the principal decreases with each payment, the interest amount also decreases. The bank provides an interest certificate at a certain period through which you will be able to know how much amount you paid for the interest and principal.
Can I Make Prepayments on My Loan?
Yes, many lenders allow prepayments. Making extra payments can reduce the total interest paid and shorten the loan term. Also, most of the banks and financial institutions don’t impose early repayment charges on education loans.
What is the EMI (Equated Monthly Installment)?
EMI is a fixed payment amount made by the borrower to the lender at a specified date each calendar month. It comprises both principal and interest components. The EMI amount is fixed based on the interest rate, repayment period and monthly income of the borrower.
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What Happens if I Miss an EMI Payment?
Missing an EMI payment may result in penalties and negatively impact your credit score. Contact your lender immediately if you anticipate any financial difficulties. Education loan default can also result in legal action by the lender.
Can I Change the EMI Amount or Frequency?
Some lenders allow modifications to EMI amounts or frequencies, but it’s essential to discuss this with your lender and understand the implications. Usually, the EMI amount or loan period can be changed through an education loan restructure. In such cases, make sure you haven’t delayed any payments for more than 30 days.
What is Loan Forgiveness?
Loan forgiveness is the cancellation of a portion or the entire loan amount under specific circumstances, such as completing the education program or working in a designated profession. However, forgiveness of education loans is not a usual practice in India. These cases are generally observed in the USA.
How Can I Track my Loan Amortisation Schedule?
The bank or the lender will provide an amortisation schedule outlining each payment’s principal and interest components. Additionally, online calculators are available for personalized tracking. All such calculations are done through a loan amortisation schedule.
Is Loan Amortisation the Same for Fixed and Floating Interest Rates?
No, the amortisation process remains the same, but the proportion of principal and interest in each payment may vary based on the type of interest rate. If you have taken an education loan on a floating rate of interest, the EMI amount may fluctuate if the interest rate rises or falls.
How Will Loan Amortisation Work if I Refinance My Education Loan?
Refinancing involves replacing an existing loan with a new one, often at more favourable terms. It’s advisable to explore refinancing options to secure better interest rates. The amortisation schedule will be the same for both existing and new lenders. The new lender will provide you with interest certificates at certain intervals.
By being informed about the repayment process and monitoring your payment through the amortisation schedule, you can make sound financial decisions and ensure a smooth journey towards repaying your education loan. Always communicate with your lender, stay updated on terms and conditions, and consider seeking professional financial advice when needed.
To know more about the loan application process, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience. ;
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