What is the outstanding capital?

Your banking lawyer helps you to break down a key concept in banking disputes in just a few minutes: the outstanding capital.

The concept of outstanding capital

When a bank grants credit to a borrower, the financing project is actually made up of three elements:

• It includes, of course, the sum borrowed, which we call capital;
• it then includes the interest that the lender derives from lending the capital in return for repaying it in instalments, over a longer or shorter period; this interest corresponds to the interest on the loan;
• Lastly, it includes costs corresponding to the application fee when the loan is granted, and then the cost of insurance when the loan is repaid in instalments.

To understand these three elements, here is an example that we will use throughout our presentation.

The loan is said to begin repayment when the instalments start to be withdrawn from the borrower's bank account.

Each instalment is then booked by the Bank and deducted from the general debt in a process known as payment allocation.  

If we wish to analyse this allocation further, we need to understand that, in accordance with article 1343-1 of the French Civil Code, " When an obligation to pay a sum of money bears interest, the debtor is discharged by paying the principal and interest. Partial payments are deducted from the interest first. Interest is granted by law or stipulated in the contract. The contractual interest rate must be fixed in writing. It is deemed to be annual by default. ".

In other words, the monthly instalment will clear (or amortise) :

• interest ;
• expenses (insurance) ;
• the capital item.

Once you have subtracted the part of the levy that goes to the borrowed capital, you obtain a sum that is slightly less than the previous sum, which constitutes the "borrowed capital". outstanding capital ".

Find the outstanding capital on an amortisation schedule

Because a definition is no substitute for a good illustration, here's an extract from an amortisation table (not complete, totally fictitious and somewhat simplified) that allows you to identify the various items we've just presented, and even to calculate the outstanding capital.

In the example described above, we saw that Mrs X borrowed a capital sum of 373,881 euros from BANK Z.

The loan has started to be amortised: this means that every month, the amount debited from Mrs Z's bank account reduces the capital borrowed.

This partially amortises the capital, which will be partially amortised by each new levy.

This is the amount shown in the extract from the depreciation table in column A (highlighted in green and clearly decreasing each month).

Every month, the outstanding capital falls.

If you want to know the amount of capital still due on a given date, you need to make a simple subtraction.

For example, we want to know the capital outstanding after the second instalment has been taken from the amortisation schedule.

Simply take the amount of capital due at maturity N1, which is 327,871.97 euros in the table opposite (highlighted in yellow), then subtract the capital that will be amortised at maturity N+2, which is 1,010.41 euros (highlighted in red).

This gives the outstanding capital at maturity N+2, i.e. 371,861.56 euros.

Calculate the outstanding capital yourself

To understand how the outstanding capital is calculated, it's best to break down the contents of the levy, as this will enable you to isolate the amortised capital.

• The composition of the sample content

We understand that the purpose of each monthly direct debit is to repay the three elements that make up the financing project.

These three elements (or items) are highlighted in pink in the table opposite and are numbered as follows:

- 2: Amortised capital,

- 3: Interest,

- 4: Fresh.

For the first monthly instalment, the direct debit amount is €1,638.08 (in blue on the table).

If we add up the three sums allocated to the repayment of each of these items, we arrive at the amount of the monthly instalment of €1,638.08, as shown by the addition opposite.  

The breakdown of 2^th The levy of 1,637.76 euros also shows that it is the result of the addition of three items: amortised capital, interest and insurance costs.

And so on, until all the withdrawals have been used to repay the entire financing project (up to €474,909.52).

• Calculating the outstanding capital

Once we have broken down the monthly direct debit, we know that it includes a part that is exclusively intended for repayment of the capital borrowed.

This makes it easier to calculate the outstanding capital.

The second instalment repaid the outstanding capital of 1,010.41 euros. Remember, it was this sum of 1,010.41 euros that we subtracted from the outstanding capital after the first instalment. This gave us the sum of 371,861.56 euros.

To find out what happens to the outstanding capital in the event of acceleration, please see our next issue on the subject.