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Vidhi Chauhan
Vidhi Chauhan is a copywriter and content writer with extensive experience creating high-quality, SEO-driven content across multiple industries, with a strong focus on fintech. She has written extensively on GST, banking, personal loans, business loans, credit cards, income tax, insurance, and other financial topics, helping Indian readers understand complex concepts through clear, accurate, and engaging content.
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In most cases, taking out a loan involves looking at only one figure: the EMI. But then, the EMI figure doesn't really help you understand how much of each instalment goes toward repaying the principal versus the interest.
Here comes the importance of the loan amortisation schedule. It breaks down your repayments month by month, showing how much of the EMI goes toward the principal and how much goes toward interest.
Comparisons of schedules aid in making informed loan decisions.
A loan amortisation schedule is an in-depth payment schedule made for the entire loan period. Each line in the schedule usually indicates one EMI/repayment cycle and its impact on the loan balance.
As opposed to an EMI calculator, which only gives you the amount to be paid in instalments, an amortisation schedule gives you information on what transpires within each EMI cycle. Some of the things it includes are:
The exact format can differ between lenders, but these are the key figures you should look for when reviewing your schedule.
Reading an amortisation schedule becomes simple once you get familiar with each column's meaning.
This indicates where you stand with respect to your repayment cycle. If you have EMI 1, it means that this is your first instalment, whereas EMI 24 will indicate that you are making your 24th instalment.
The opening balance indicates the remaining principal amount before the monthly instalment has been made. The closing balance at the end of one EMI period becomes the opening balance in the next period.
It indicates the interest portion of that particular repayment period. In the case of a reducing balance loan, the interest is usually calculated on the outstanding amount of principal. As the outstanding amount reduces, the interest amount also decreases.
The principal component is the amount in your EMI that pays down the principal of your loan. As the interest component gets smaller, a bigger portion of your EMI will be used to repay the principal amount.
Closing balance refers to the amount of principal left after the EMI. The closing balance is computed by subtracting the principal component from the opening balance.
For instance, let’s say you start an EMI with an opening balance of ₹10,00,000. If ₹8,000 is being used to pay off the principal amount, your closing balance will be ₹9,92,000.
One of the first points to be noted from an amortisation schedule is the fluctuating ratio of interest to principal.
The reason for the higher interest portion in the early EMIs is that the balance of principal at the start of the loan is very high. Hence, the interest charged against this balance is relatively high, and more of the payment will be made against the interest portion of the EMI.
After making several EMIs, the balance of principal will be reduced, and hence, the interest will also be reduced.
For example, an illustrative repayment pattern could look like this:
This does not imply that there is a varying interest rate charged every month. Instead, the interest rate varies because the principal on which the interest is based is decreasing each month.
An amortisation schedule can be seen as a guide to repayments for the duration of the loan period. While focusing only on the EMI, you can make use of it to know how fast your outstanding principal is being reduced.
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The amortisation schedule will be helpful in answering the following questions, among others:
This can be especially useful in the case of a long-term loan since the slightest difference in repayment policy can influence the total interest burden.
Use of an amortisation schedule becomes highly beneficial when you are planning for part-prepayment or early repayment of a loan.
Initially, you must calculate the outstanding balance that will give you an estimate of the principal amount left. Then, consider the remaining interest payment that is reflected in the schedule.
Here, you should analyse how an extra payment will affect your repayment scenario. If the outstanding balance is ₹20,00,000 and you make a part prepayment of ₹3,00,000, then the outstanding balance can be reduced to nearly ₹17,00,000. However, it depends upon the policy of the lender.
The exact impact of part-prepayment on your EMI, tenure, and interest will depend upon the calculation method followed by the lender. In some cases, there will be a reduction in tenure along with no change in EMI, whereas in some cases, there will be an EMI revision.
Therefore, it is important to review the loan contract and part-prepayment terms.
The functions of the two are different from one another.
The main function of the EMI calculator is to estimate your monthly payments, taking into account various things like the total loan amount, interest rates, and tenure of the loan.
An amortisation schedule, however, gives a detailed breakdown of all the repayments. It explains the division of the total EMI paid by you into the principal and interest, and the reduction in the balance owing after each EMI payment.
An EMI calculator answers the question "How much will I pay?" While the amortisation schedule answers "What am I paying for?"
An amortisation schedule for a loan does not just provide some numerical figures. An amortisation schedule provides you with an understanding of the way your loan will be repaid by listing the EMI, interest element, principal element, and the balance outstanding against each EMI.
Once you are able to understand these figures, you will be able to keep yourself updated on your progress, why early EMIs might have higher interest elements, your outstanding principal, and also the effect of extra repayments.
Since the actual repayment pattern might differ according to loan size, interest rate, tenure of loan, repayment pattern, etc., always consult your amortisation schedule issued by the lender.
Yes, the amortisation schedule can be changed due to any changes in the interest rates, EMI amount, repayment period, etc. The amortisation schedule can also be revised based on a valid adjustment or prepayment.
Generally, the amortisation schedule is concerned with the repayment of the principal and interest and not with any one-off charges. The processing fees, documentation fees, premiums, and other charges can be mentioned separately in the loan account.
Yes, an amortisation schedule can be used to detect errors in EMI deduction. This can be done by comparing the EMI, date of payment, and the components thereof with the bank statement.
An amortisation schedule exists for loans to be paid back through instalments or term loans. There will be differences in the schedules of loans to be paid using some other form of payment than instalments, such as loans to be paid back using balloon payments.
A missed EMI can incur some additional charges or extra interest depending on the loan contract. Therefore, the outstanding balance and further calculations might change in the schedule of the loan.
No, because different borrowers might have a different loan tenure, interest rate, frequency of repayment, or even any other kind of condition. Even a minor change in the interest rate might create a different repayment schedule.
The repayment of the loan in monthly instalments or other frequencies may have an effect on the payment of both the interest and the principal. As such, there will be changes in the number of instalments and the instalment breakdown.
Yes, it is possible since the amortisation schedule will give differences in the amount of interest, the repayment of the principal, and the outstanding balance, among others.
You can demand a schedule for repayments or a statement of the loan from the lender using their customer support means. In case the lender offers only a basic statement, you may specifically demand the principal and interest distribution of each repayment period.
Yes, the amortisation schedule and loan statement can assist in assessing the remaining amount of principal and repayment status before balance shifting. One can also evaluate the interest savings with regard to transfer cost like foreclosure charges.
