Repayment Schedule Loan Amortisation

The term loans have to be amortised accord predetermined schedule. The payment/repayment has two components: (i) interest and (ii) represent of principal;

The interest component of loan amortisation is a legally enforceable contractual obligation, borrowers have to pay a commitment charge on the unutilised amount. The interest on term, by the financial institutions subject to a minimum prime lending/floor rate (P/R), is risk-represent and varies with the credit risk of the borrower. In case of default in respect of both and principal components, liquidated damages/penal interest at a specified rate for the default on the default amount has to be paid.

Typically, the principal is repayable over 6-10 years period after an initial grace period whereas the mode of repayment of term loans is equal semi-annual installments in Cl institutional borrowings, the term loans from banks are repayable in equal quarterly install. With this type of loan amortization pattern, the total debt servicing burden declines over time interest burden declining and principal repayment remaining constant. In other words, the common practice in India to amortize loan is repayment of principal in equal installments (semi-annual/ annual) and payment of interest on the unpaid/outstanding loans.

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