Hi, I have a question to ask. I am going to pay-off my outstanding balance. But, should I make a lump-sum based on principal outstanding or total outstanding?

outstanding balance for hire purchase (car) or mortgage house loan??

u means settlement? sum of outstanding (interest + principal loan) can be obtained anytime from ur financial institution (bank) anytime, better check with ur branch where u apply the loan from as the documents are files in the branch

Hi Joey, how nice you reply my silly question. I took a personal loan. Yes, I mean full settlement. My statement shows the figure in total outstanding and principal outstanding. Yes, I can refer to the bank soon, but as part of the bank procedure, I need to somehow fax my request to their call center and later I will know what is my exact full settlement instead of I just walk-in to their branch. And this will takes up to several weeks. Apa punya bank pun tak tahu. Anyway, the issue is, I am in the midst to do my own budget. By the time I'm waiting for the call center reply, I'm afraid I have used my budget for other debts settlement.

This post has been edited by RinaRon: Jul 20 2011, 03:01 PM

Principal outstanding means the balance owed without the interest added.
Outstanding balance is the balanced owed will the last payment is made with the interest added.

When you want to make a full settlement (meaning settling the loan) they will calculate the figure from outstanding balance minus the interest on a pro rata basis ( I don't know how they calculate as there is a minimum loan period regardless how early you settle, like 3 or 5 years, I think ) on a specified date that you want the figure. Eg. you want to settle before end of the month they will calculate the full settlement figure on or before the end of the month.

The way you enquired seems to comes from CC debts, correct me if I am wrong. My younger brother owed 3 banks for CC debts. He wanted to buy an apartment but was black listed due to the debts. So he went and checked the amount owing. One was 12K principal outstanding ( the amout owing when card was cancelled ) but interest accrued during the period was 18K How did they came to that figure, who knows. Then the negotiation begin. As the loan was now in the hands of bad loans department, sometimes banks sells off the bad debts to other companies. My brother says he will settle the principal amount only as he can get a loaner for that amount, he says. The agency wanted him to pay more but my brother was adamant and he says either that or no payment. That goes with the other 2 banks as well. He paid all 3 CC debts without paying the interest and got off the black listing. He managed to get a loan from another bank for the condo loan with his boss being a guarantor but unable to apply any CC again.

So, to make it simple, in my brother's case, the principal balace was 12K and the outstanding balance was 30K. So, I hope you get the idea.

If it is a housing loan, I think the interest is added annually. Eg. if you take a loan of 100K at an interest of 4% means for the first year the outstanding balance is 104K. After a year, you paid, say 12K in instalments. As 4K is the interest so you have paid 8K on the principal amount. So, after a year the principal balance is 92K and another year's interest is added so the outstanding balance for the next year is RM95680 ( 4% of 92K as the pricipal owing is 92K now ). Another year passed and you paid another 12K in instalments and RM3680 being the interest you have paid off RM8320 of the principal amount meaning your outstanding principal is now RM83680 and the next's year interest (depending on bank's rate) is added to make the outstanding blance for next year. Most banks penalised those who settles early (within a span of 5 years, I think ).

Hi Etigge, this is becoming an interesting topic! I'll definitely will take a lesson somehow from the story! Anyway, I owe a personal loan instead and thankfully (I guess?) it is not a bad-debt. I think your brother's case similar to many bad-debtors out there which has left the outstanding balance up to few years and the agencies hired by respective banks will accept principal, as long as the debtor will pay back what he/she owed to. So, now back to my story , as I mentioned in my reply to Joey, my concern is I am try to allocate exact amount of money for this one before I allocate my budget to settle other debts. From your post, I hope you can help me should I allocate my money based on principal/total o/s?

This post has been edited by RinaRon: Jul 20 2011, 03:42 PM

Too much of explanations but all are not correct and accurate.

Hi Jack2, Mind to share your thoughts?