Reducing balance explained
Interest is charged on the balance, so it falls as you repay. Early payments are mostly interest; later ones are mostly principal.
This is why the balance after two years is higher than the amount borrowed minus the payments made.
Worked example
£20,000 at 7% over 5 years costs £396.02 a month. After 24 payments, £7,174.18 of principal and £2,330.39 of interest have been paid.
The balance is £12,825.82 with 36 payments left, and the interest still to come is £1,431.05.
Using the balance
The balance is the figure to settle if you sell or refinance. Ask the lender for a dated payoff quote, because daily interest changes it.
Overpaying reduces the balance directly and shortens the term.
Inputs for the car loan EMI reducing balance calculator
Original loan amount
How much was borrowed at the start.
Interest rate (per year)
The yearly rate, charged monthly at one twelfth of the rate.
Original term
The full term of the loan, in years.
Payments made
How many monthly payments have been made.
First payment date
The date of the first payment, used to date the schedule.
CALCULATOR QUESTIONS
Car loan emi calculator reducing balance questions
What is the balance after 24 payments?
£12,825.82 on a £20,000 loan at 7% over 5 years.
Why is so much interest paid early?
Interest is charged on the balance, which is highest at the start.
Does the EMI change?
No, the payment is level; the split between interest and principal changes.
Can I settle early?
Yes. Ask for a settlement figure, which discounts the remaining interest.