People who use credit cards or borrow money from banks regularly have heard the term outstanding balance. So what is outstanding balance? What are the effects of outstanding loans?
1. What is outstanding balance
?Debt balance is a common term in the banking industry, finance refers to the amount of money a person owes the bank when opening a credit card or taking a bank loan. If you have paid the entire amount of the debt, the outstanding balance will be calculated as 0. If you have not paid the debt in full, by the payment period, but you do not pay the outstanding balance, the bank will charge more for you. penalty fees for not paying on time. Along with that, you or other outstanding individuals will be assessed as having a bad credit score, which affects future loans.
What is outstanding balance?
Outstanding balance seems to be a very broad concept, covering many related sub-concepts. So, when it comes to outstanding loans, what other concepts do we need to learn about?
2. Clarifying the concept of types of outstanding loans
When it comes to the outstanding balance in finance, there are many concepts we should know that are closely related to the outstanding balance. They include the initial balance, loan balance, credit card balance or diminishing balance, etc. In essence, these types of balances refer to the customer’s debts that need to be repaid to the customer. bank side. So how are each of the above types of outstanding loans defined? Understanding this clearly helps you distinguish clearly the types of outstanding loans so that you know what you should do and what types of balances you already have?
Conceptual information of types of outstanding loans
2.1. Loan balance
Another way of calling the loan balance is the credit balance. This type indicates the amount owed by the customer to the bank by a milestone: starting from the time the customer signs the contract for a bank loan. The loan balance is calculated using the following formula:
Loan balance = total bank loan + interest during the loan term
The outstanding amount will be clearly stated in the contract and approved and confirmed by both the borrower and the bank.
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Loan balance or credit balance has a very important influence on the action of taking a bank loan or opening a credit card. Therefore, if you do not complete the repayment of your loan balance, your chances of getting a loan or opening a credit card are almost nonexistent or very difficult.
2.2. Debt balance decreases gradually
This is the outstanding balance that indicates the amount owed after deducting the principal that has been paid. For example, if you borrow 10 million VND from the bank, 1 month later you can pay 1 million VND, the remaining amount of debt is 9 million VND. Accordingly, the bank will calculate the interest rate in the following month with the number of 9 million, not the amount of 10 million you borrowed initially.
2.3. Initial outstanding balance
Learn about different types of balances
This concept refers to the amount of money that the bank gives you the first loan. Going back to the example above, 10 million is the amount that is counted as the initial loan balance.
2.4. Outstanding balance at the end of the period
This term is used exclusively for credit cards. It is the total amount that comes from every time you make a credit card swipe along with all the costs incurred such as interest in the previous statement period.
2.5. Overdue balance
This is the outstanding balance that the borrower fails to pay the capital or interest on time as prescribed by the bank, causing the bank’s business activities to be adversely affected.
With this concept, we can visualize the actual case through a specific example below:
Debt balance concept
2.6. Credit card balance
If a customer uses a credit card, the amount spent through the credit card is the credit balance. The essence of using a credit card is that the bank lends the card user a certain amount of money in advance to the credit card. All your spending activities through the card are the fact that you are borrowing money from the bank to spend and shop. If you can return the full amount used to the card in advance or pay it on time, you will not be charged interest, and also avoid late payment penalties.
Obviously, there are many types of outstanding loans that each of us need to learn carefully when having any transaction with the bank. This has an extremely important impact on helping you avoid the risks of outstanding loans. What are those risks, how to repay these loans quickly and effectively? Read on below to find out!
3. What are the serious consequences of outstanding balance
?In order for a balance to occur, you will have to suffer very serious effects, first of which are negative effects on the financial history of the company. friend. When the debts you owe to the bank are due to be paid, but you or any other person cannot pay them, you will be subject to a penalty according to the bank’s regulations, a fine from 5 to 6% of the total amount. outstanding balance.
Along with that negative impact, those who are burdened with outstanding loans will not be allowed to participate in any other loan activities at that bank and the entire banking system, applicable to all types of loans. including cash loans, consumer loans or unsecured loans. The credit card itself – the factor that carries your credit balance will also be lost disabled, locked and cannot be used for any other purpose.
Effects of outstanding debt
Until you have paid the full balance but are already in the outstanding balance, it will take a long time before you can continue to borrow money from the bank. Loan requests can be accepted but the approval time will have to wait a long time.
In case you use assets as collateral or security right from the moment you open a credit card, then you let the outstanding balance happen, then there is a high risk that you will have that property confiscated.
Because of these great harms, we will have to be very careful when taking out a loan or opening a credit card, trying to balance our financial situation and ability to repay before taking out a loan. At the same time, you must also understand how to pay off your outstanding balance quickly and efficiently.
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4. Tell you how to pay off your balance
4.1. Instructions to pay the outstanding balance when taking a bank loan
Paying off outstanding balance
If you take out an unsecured loan or mortgage at a bank, you need to pay the bank both the principal and interest within the specified time. Each bank will have its own regulations on interest and how to calculate interest, so you also need to find out this issue when taking out a loan.
4.2. Paying outstanding balance via credit card
To serve the payment of the borrower’s outstanding balance, banks all apply the extension of outstanding payment methods, so you can also pay your debt by credit card. There are 3 ways to pay:
Firstly, transfer payment via card account from one account.
Second, pay directly in cash by going to the bank to complete the transaction procedures.
Third, you can use payment through a payment order or through a check.
The information shared above has helped you to clearly explain what outstanding balance is and the terms associated with it. Once we have understood the concept as well as the great harms of a financial outstanding balance, we need to pay close attention to the payment. So how to effectively pay the balance you have? Besides paying attention to not being late for loans, people should also pay attention to payment methods. This information will be made more clear in the content below.
5. Note when paying outstanding balance
Note when paying the outstanding balance
To pay off your outstanding balance safely, you need to note a few points below:
– Ensure the security of your credit card information, limit payments on public transport such as ATMs or log in to your bank account on public computers.
– Please specify clearly and accurately the preferential information that the bank offers and apply to your credit card. Fees to pay such as arising fees, annual fees, etc.
– You should not use your credit card for cash withdrawal purposes.
– The most important thing is still to pay your credit card balance on time as prescribed so as not to incur any other penalties.
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So, this article has provided you with information to understand what is outstanding balance? Moreover, you also gain useful knowledge related to debt repayment and note that you pay your debt properly and on time. Always remember, the late payment of the outstanding balance will cause you to suffer great losses, directly affecting your next transactions at the bank. Do not forget to repay the bank when you are eligible, or before taking a loan, carefully consider your financial capabilities.
In the financial sector, banking has acronyms and is considered a common industry term. However, because they are a specialized term, it is not always easy to remember even though we already know what it is. This case is very likely to happen with the term NPL. So what is NPL? How to memorize NPL more effectively? Let’s find a way with timviec365.