What is Remaining Balance
Remaining balance can refer to various financial terms, but in most cases the remaining balance is associated with a loan or a debt. The remaining balance on a loan or a debt is the amount of money that is still owed.
When the remaining balance is used in referral to a loan, then the remaining balance is the amount of money still owed on the principal. The principal of a loan is the original amount of money borrowed. This means that the remaining balance on a loan refers to the proportion of money still owed on the original borrowed amount only. The remaining balance does not include any interest or other applicable fees, such as penalties for late payments.
Remaining balance of a loan is sometimes confused with the outstanding balance of a loan. These terms do not mean the same thing, however. As mentioned, remaining balance does not include any interest or other applicable fees. In contrast, outstanding balance does. Outstanding balance is the amount of money still owed on a loan or a debt including any applicable fees.
How to Calculate Remaining Balance
Take a look at the following example of a loan.
Roger takes out a car loan of $8000. The loan has an interest rate of 2% on the principal. Remember, the interest is on the principal and not on the outstanding balance. This adds an interest payment of $160 per month. Roger will pay in monthly installments of $560 over 20 months. Roger manages to make each payment on time for the first six months. After the first six months, the remaining balance is $5,600. The outstanding balance is $6,560, ($5,600 + $160 x 6 months). Unfortunately, Roger is unable to pay the monthly installment for the seventh month. Roger is nine days late on the seventh payment. There is a penalty fee of $12 for each day the payment is late. This adds a total of $108 in penalty fees for the seventh month. This means that Roger owes $668 for the seventh month. In this situation, the remaining balance is still $5,600, but the outstanding balance has increased to $6,668.
In certain contexts, remaining balance does not refer to a loan or a debt. Rather, the remaining balance refers to the amount of money remaining on a debit card. For example, you have $300 in your bank account. If you go the ATM and take out $100, then your remaining balance is $200. The ATM machine might display the remaining balance on the screen or print it on the receipt. In this case, this is not the amount of money owed, but the amount of money in your bank account.
The video below explains how to calculate remaining balance on a loan.