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Outstanding Balance: What It Means and How It Affects You?

Outstanding Balance: What It Means and How It Affects You?

Your financial stability and history are essential in determining whether you or your business are the right candidates for loans, credit approvals, or investment opportunities. While several factors can influence your financial stability, outstanding balances are particularly significant in determining your loan approval prospects.

In this article, we will explore what is outstanding amount’s meaning, what is current outstanding in credit cards and businesses, and how it affects your financial health.

What is Outstanding Amount in Credit Card and Loans?

When you take a loan, it typically includes the amount to be paid to the lender regularly, combined with an interest charged according to the predetermined rates. Outstanding balance is the amount you are required to pay on debts that incur interest.

Simply put, outstanding amount’s meaning is the amount left to be paid back on any debt you have taken. It can include balance transfers, purchases, cash advances, fees, interest charges, and any other applicable costs.

How Interest Is Calculated on Outstanding Amount in Credit Card

To better understand what is outstanding amount in credit card, let’s see how it’s calculated. 

Credit card interest is calculated using the Annual Percentage Rate (APR), which is converted to a daily rate by dividing by 365. Once you miss the full payment by the due date, interest applies to your outstanding balance.

The calculation uses the Average Daily Balance method: your daily balance is tracked throughout the billing cycle, then averaged and multiplied by the daily interest rate and number of days.

For example, with an 36% APR:

  • Daily rate = 36% ÷ 365 = 0.0986%
  • If your average daily balance is ₹50,000 over 30 days
  • Interest = ₹50,000 × 0.0986% × 30 = ₹1,479 per day

One thing to note is that interest compounds daily, meaning unpaid interest gets added to your principal, and the next day’s interest is calculated on this new, slightly higher amount. 

Impact of Outstanding Amount on Credit Score and Eligibility

Whether it is an individual or business, having significant credit card outstanding balance can negatively impact the credit score or CIBIL score. In fact, 30% of your credit score ratings depend on the debt amount you owe at a specific time.

Any potential lender will assess your credit score and history before offering you a loan, as these factors determine your creditworthiness and repayment ability. Having a high credit score can also significantly increase your chances of loan approval.

Some creditors may even take legal action if you fail to clear your outstanding amount for a long time. This may lead to time-consuming court proceedings and more financial burdens.

How to Manage & Reduce Outstanding Amount in Credit Card

When you know what is current outstanding in credit card, the next thing is to take step to reduce your credit card outstanding balance to avoid extra interest and protect your credit score.

1. Setting up automatic payments to avoid payment delays and missed deadlines. This will also prevent late fees and the accumulation of interest charges.

2. Focus on clearing high-interest debts or credit cards with higher interest rates first to avoid unnecessary financial stress in the future.

3. Negotiate clear loan terms with lenders or, in the case of businesses, with customers. This may give you temporary relief from payments. Businesses can also communicate with customers that prolonged payment delays may lead to serious consequences.

4. Regularly monitoring your expenses can reduce discretionary expenses like dining out and entertainment, thus allocating more money for debt clearances and eliminating unnecessary costs.

5. Making consistent partial payments may take longer but can significantly reduce the burden of high outstanding balances.

Do Late Payments Increase Outstanding Amount in Credit Card?

Yes, late payments can quickly increase your credit card outstanding balance due to the following extra charges:

  • Late Payment Fees: Lenders can charge between ₹100-₹1,500 per missed payment, which gets immediately added to your balance.
  • Interest Charges: You also lose the interest-free grace period (typically 20-50 days). After that, interest accrues daily on the entire outstanding balance, compounding the debt rapidly.
  • Increased Interest Rate: Some issuers may raise your APR as a penalty for late payments, making future interest even higher.

This creates a debt spiral where your credit card outstanding balance grows quickly, even if you pay the minimum due.

Conclusion

Managing loans and credit card outstanding balance effectively is key to ensuring long-term financial stability and well-being for both businesses and individuals. Taking proactive steps like regular monitoring, timely payments, and transparent negotiation with clients or lenders can help you regain control of your financial situation and improve your credit score.

Are you looking for affordable credit card options? Check out Tata Capital’s credit cards, which offer low interest rates, exclusive rewards, and convenient access. Check your CIBIL score using Tata Capital and assess your eligibility to get instant loan approvals. For further information, visit Tata Capital website and download the app today!

FAQs

What do you mean by outstanding amount?

An outstanding amount refers to the current amount you must pay on your existing loans. It has many components, like cash advances, applicable fees, balance transfers, online or offline purchases, and more.

What is the outstanding loan amount?

An outstanding loan is the remaining balance you must pay on your borrowed loans, including the principal amount and interest charged.

How do I clear my outstanding loan amount?

To clear your outstanding loan amount, you must visit the lending institution and fill out a proper form or write a specific letter. Then, you must pay the amount and sign the required documents. Your loan amount will be automatically cleared once the lending institution receives the amount.

How to calculate outstanding amount?

To calculate your outstanding amount for a particular loan, you can use this formula: Outstanding amount = opening loan amount - principal repayment Here, the opening loan amount is the loan you initially took, and principal repayment is the total principal to be paid on the whole loan tenure.

What is outstanding amount meaning in a credit card statement?

Outstanding amount meaning is the total balance you owe on your credit card. This can include your purchases, cash advances, interest charges, fees, and any unpaid balance from previous billing cycles.

How is current outstanding in credit card different from the statement balance?

Statement balance is the amount owed at the billing cycle's end. Current outstanding includes the statement balance plus any new transactions, fees, or interest added after the statement date.

Will paying only the minimum due keep my credit card outstanding in control?

No. Minimum payments only cover a small portion of your balance, mostly going toward interest rather than principal. It mostly prevents late fees. Your debt barely decreases while interest compounds daily.

How does credit card outstanding amount affect my credit score?

High credit card outstanding balance increases your credit utilisation ratio, which heavily impacts your credit score. It’s ideal to keep your utilisation below 30% as exceeding it significantly lowers your score.

What fees or interest are charged on unpaid outstanding amounts?

Fees, interest rates, grace periods, and penalty charges vary by lender, card type, and terms of the credit agreement, so unpaid amounts can grow differently depending on the issuer’s policies.

Should I pay off outstanding amount in full every month?

Yes, paying the full outstanding amount monthly is the best. It eliminates all interest charges, maintains your interest-free grace period, keeps your credit utilisation low, improves your credit score, and prevents debt accumulation.

What happens if I don’t clear my outstanding amount before due date?

You'll face interest charges on the unpaid balance, lose your interest-free grace period, incur late payment fees if you miss the minimum due, and see your credit score drop due to higher utilisation and non- payment.

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