When you take out a loan such as a personal loan, the primary purpose of it is to provide you with quick access to funds for a range of purposes. Whether it is paying your child’s tuition fees, renovating your home, funding a vacation, or financing a medical emergency, a personal loan comes in handy when you require a significant amount of money in one go. The reason the loan is helpful is not just because it provides you with the funds when you need them but also because it allows you to repay those funds over a period of time in regular instalments known as Equated Monthly Instalments. This is because of the amortisation of the loan. And here is where an amortisation schedule comes in.

  • What is loan amortisation?

Instead of paying back the personal loan to the lender in one go, you choose a repayment tenure of anywhere between 12 months to five years  as per your preference and eligibility. Over this tenure, the loan is amortised – repayment is made in regular instalments both towards the interest and the remaining principal amount.

  • What is an amortisation schedule and how is it calculated?

A personal loan amortisation schedule shows you the dates and details of each EMI payment for your loan. It includes:

• Month
• Opening balance
• Interest paid during the month
• Principal repaid during the month
• Closing balance 

Over the tenure, the interest component decreases because the principal on which the interest is calculated decreases. So, while the EMI amount remains the same over the personal loan tenure, the proportion of the EMI that goes towards the interest and the one that goes towards the principal changes. And all these details are given in an amortisation schedule.

Hence, the amortisation schedule is key to knowing the status of your loan, your overall interest cost, and how your loan is being systematically paid off.

  • How to get the amortisation schedule?

When you click on the personal loan apply button and your loan is approved, the lender sends you the amortisation schedule. However, before you apply for the loan, you can get an approximate idea of the amortisation schedule by using a personal loan EMI calculator

This free online tool not only helps you estimate your personal loan EMI but also gives you an amortisation schedule for the loan. Hence, using an EMI calculator before you go ahead and apply for a personal loan is important.

Ending note

A personal loan is a helpful financing option to meet a variety of financial needs instantly. It requires no collateral, the entire application process is online, and the funds can be used for a variety of purposes such as travel, medical emergency, etc. If you use an EMI calculator to determine your monthly dues and look at the amortisation schedule carefully, you will be able to plan for the repayment of the loan and your overall finances in an effective manner.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.