21 March, 2025 | 11:00 IST
A personal loan can be a lifesaver when you need extra cash for an emergency, a big purchase, or just to clear off some debts. Since most personal loans are amortised, you pay them back in fixed monthly instalments, covering both the interest and the actual loan amount. At first, a bigger chunk goes toward interest, but over time, more of your payment starts reducing the loan balance. It’s a predictable way to repay since you know exactly what you owe each month. Just keep an eye on the interest rates, processing fees, and any extra charges if you plan to pay it off early.
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An amortised loan is a loan that is repaid in fixed instalments over time, with each payment covering both interest and the loan principal. In the early stages, a larger portion of the payment goes toward interest, while later payments focus more on reducing the principal. This structured repayment method makes it easier to manage finances, as the borrower knows exactly how much to pay each month. Home loans, car loans and personal loans are common examples of amortised loans.
Personal loans are amortised through fixed monthly payments that cover both the principal and interest over the loan tenure. When you take a personal loan, the total amount is divided into equal instalments using an amortisation schedule. At the start, a larger portion of your payment goes toward interest, while a smaller part reduces the principal. As you continue making payments, the interest portion decreases, and a larger share of your payment starts reducing the loan balance. This structure ensures that the loan is fully repaid by the end of the tenure while keeping monthly payments predictable.
To put it simply, imagine you borrow a big box of chocolates from a friend and promise to return them little by little every month. But your friend wants a few extra chocolates as a “thank you” for lending them to you.
At first, when you start returning, most of what you give back are the extra chocolates (interest), and only a few go toward reducing the number of chocolates you actually borrowed (principal). As time goes on and you keep paying, you start giving fewer extra chocolates and returning more of the original ones. By the end, you have given back all the chocolates you borrowed, plus the extra ones your friend asked for.
That’s how an amortised loan works. In the beginning, you pay more towards interest, but later, more of your payment reduces the actual loan amount.
You can check the amortisation using this calculator.
ALSO READ: Personal Loan Prepayment: Key points to consider before paying off your loan earlier
Understanding personal loan amortisation is key to managing your finances efficiently. With fixed monthly payments, you can plan your budget while steadily reducing your loan balance. Through Moneycontrol’s online lending platform, you can explore personal loan offers of up to Rs 50 lakhs from eight lenders, with interest rates starting at 10.5% per annum. The 100% digital application process ensures a seamless and hassle-free experience.
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