The term belongs in the field of credit: for every loan, there is a lender or creditor and a borrower or debtor. What the creditor makes available to the debtor – usually an amount of money – is called capital. The interest of the debtor is obvious: he wants to use the capital made available; be it to build a house, to found a company or to buy a car.
The creditor’s interest, on the other hand, only arises when the term interest is added: the debtor is not merely obliged to repay the creditor money in the amount of the borrowed capital; he is also obliged to pay an additional amount collected at certain time intervals: the interest.
What does the term mean?
In view of the distinction between interest and capital, the meaning of the term residual debt now arises. The term is primarily important for the installment loan (and not so much for the final loan): Since the debtor pays both interest and capital in installments, he easily loses sight of how much capital he actually has to repay; It is precisely this amount of capital that is easily lost sight of as residual debt.
In order to correctly determine the amount, it must, therefore, be taken into account how much of the previously used installments to repay the capital and how much has been used to repay the interest.
The exact amount is transmitted by the respective bank at regular intervals. You can, of course, do the calculation yourself at any time with some effort; There are also a number of computer programs that have been developed specifically for this purpose.
When is the term relevant?
The residual debt always plays a role when the contractual relationship between creditor and debtor comes to an end. There can be many different reasons for this; Possible reasons include the following:
1. The contract expires. In the simplest case, of course, the debtor needs to know how much he still has to pay or for which he has to conclude a new loan agreement.
The debtor wants to pay the remaining debt before the contract expires. This can happen, for example, when the debtor suddenly gets money and no longer wants to pay interest unnecessarily. It is also possible that another contract promises better conditions and a change of contract is, therefore, an option. In both cases, however, the contractual penalty interest rate must be taken into account.
The debtor becomes insolvent or dies. In the event of insolvency, which may be caused by unemployment, the amount due must be presented to the court. In the event of death, the amount may be transferred to the heirs. To protect against the consequences of both cases, a debtor can take out appropriate insurance.