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 an outstanding balance is, the current outstanding meaning in credit cards and businesses, and how it affects your financial health.
What is the Outstanding Balance?
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, it 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.
What is the Outstanding Amount on a Credit Card?
The outstanding amount on credit cards refers to the total amounts you owe to your issuer or lending institutions at a particular time. It includes unpaid purchases, interest charges, fees, or any other transactions that you have not yet cleared. It is primarily the sum of all transactions made using your credit card subtracted by the payments you have already made.
For example, if you make a purchase worth Rs. 40,000 by your credit card, your outstanding amount will be Rs 40,000. If you pay 10,000 of this amount, the remaining outstanding amount will be Rs 30,000.
Credit card outstanding balances are different from statement balances, which are paid at the end of each billing cycle. Statement balances include all the transactions and credit card interest rate charges during a billing cycle. A billing cycle typically lasts between 28 and 31 days. Outstanding balances, on the other hand, give you more real-time data. They combine statement balances and any recent purchases after the last billing cycle.
What are Outstanding Balances in Businesses?
Like with loans and credit cards, businesses have outstanding balances, too. These are of two types. The first outstanding balance is in case customers owe money to businesses on the purchase of any goods or services. This is more commonly known as the customer invoice outstanding balance.
Another type of outstanding balance in business is when businesses owe money to others, which is referred to as outstanding debts. This may include payments due to suppliers or loans taken for capital or operational needs.
What are the Effects of Outstanding Amounts?
Whether it is an individual or business, having significant outstanding amounts on loans and credit cards 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 Can You Manage High Outstanding Balances?
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.
The Bottom Line
Managing outstanding balances 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.
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FAQs
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.
An outstanding loan is the remaining balance you must pay on your borrowed loans, including the principal amount and interest charged.
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.
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.
18 March 2025
4 mins read
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