The unpaid balance is the amount that has not yet been paid on an original debt.
Balance is a concept that can be used to name the conclusion obtained from an analysis or the result of an account or calculation. At the accounting level, the difference between income ( credit ) and expenses ( debit ) is called balance.
Unpaid , for its part, is a term that comes from the Latin insolūtus and refers to that which has not yet been paid .
What is the unpaid balance
The idea of unpaid balance , thus, appears when a certain type of loan or credit is requested. In this type of operations, a person or entity requests money from a bank, which delivers said money, charging interest . The person who requests the credit, therefore, contracts a debt with the bank that must be paid within an established period.
It can be said that when an individual takes out a loan, the amount they requested becomes the original debt . Each installment of the credit 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 simultaneously the corresponding interest is paid (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 requested a loan of $100,000 and has repaid $75,000 , the unpaid balance is $25,000 .
How the unpaid balance is settled depends on the creditor's policies and conditions.
Different types of interests
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 on 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 we will have to face. It is very important to know before contracting a loan whether the institution that will give 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 pay the fees.
Treatment of the unpaid balance according to the entity
Some institutions give us the opportunity to advance payments whenever we have extra money, and this can only be beneficial , since it further reduces the interest that we will pay in the future: if we have the money to pay two installments, for example, We will ignore the interest corresponding to the next one to get directly to an inevitably lower one. In any case, it is important to note that not all companies allow us to carry out operations of these characteristics , which is why we should always ask beforehand.
If, in fact, the lender gives us the possibility of paying more money than corresponds to a single installment, then it is also likely that we will be able to pay off the rest of the debt in a single payment . This is not very common, but it is good to have this benefit, since many contracts provide for a penalty for any balance advance.
The answer to "what type of loan is the most convenient" is hidden in the interest and commission policy of each company, whether the one that entails the payment of interest on the unpaid balance or the one in which it is 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 meet the deadlines stipulated in the contract.