Amortization
The process of repaying a loan through fixed instalments that cover both interest and principal.
Early EMIs are interest-heavy and later ones principal-heavy. Requesting an amortisation schedule shows exactly how much principal is outstanding, which matters before prepaying or balance-transferring.
Why Amortization matters when comparing products
Understanding amortization is crucial when comparing Indian financial products like home or personal loans. It clarifies how each EMI contributes to interest versus principal, impacting the true cost over the loan tenure. This insight helps assess which loan structure aligns better with repayment capacity and future financial planning, especially for potential prepayments or balance transfers, by revealing the outstanding principal amount accurately.
Illustrative example
Consider a loan of ₹10,00,000. An early EMI of, say, ₹10,000 might allocate ₹8,000 to interest and ₹2,000 to principal. A later EMI of the same ₹10,000 could allocate ₹2,000 to interest and ₹8,000 to principal. This shift means that initially, a larger portion of your payment services the interest component.