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How Outstanding Loans Work

What Is an Outstanding Loan?
Lauren Ward
Lauren WardUpdated July 12, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
An outstanding loan is a loan that has not yet been fully paid off. If you took out a loan, such as a personal loan or student loan, and are still making payments on it, you will have an outstanding loan appear on your credit report.An outstanding loan is an opportunity, since borrowing money allows you to pay for things and experiences you could not otherwise afford. However, it’s also a liability that needs to be fully repaid and can impact your credit profile. Read on to learn what an outstanding loan is, how it affects your credit scores and borrowing power, as well as how it compares to other loan products. 

What Is an Outstanding Loan? 

The formal definition of an outstanding loan is debt a borrower currently owes to a lender or creditor. The borrower has not defaulted on payments, nor has the account been sent to collections. However, the loan itself still requires payments before the account will be closed. Because of this, the borrower is continuing to pay interest on the balance and the loan continues to influence their credit scores and DTI (debt-to-income) ratio.DTI is calculated by dividing a borrower’s total monthly debts by their gross (before tax) monthly income. Your total monthly debts include: 
  • Monthly mortgage or rent payment
  • Minimum credit card payments
  • Auto, student or personal loan payments
  • Monthly alimony or child support payments
  • Any other debt payments that show on your credit report
All of the above can affect a borrower’s DTI. However, only a loan product is considered an outstanding loan.Recommended: The Personal Loan Defined 

Uses for an Outstanding Loan vs Personal Loan

Outstanding loans are not a unique loan product. They are simply loans that still require monthly payments. A personal loan can be an outstanding loan if the borrower is still in the process of paying it off. If you are temporarily having trouble making your payments, you may want to consider personal loan deferment.While an outstanding loan requires continued payments, one of the benefits of a personal loan is that it can be used for almost any purpose, including:
  • Debt consolidation
  • Medical bills
  • Home repairs
  • Wedding costs
  • A vacation
  • Moving expenses
  • A large purchase
  • Emergency expenses 
  • Funeral expenses
  • Pet surgery 
Personal loans typically cannot be used for paying college tuition, business expenses, or for a down payment for a house. In addition to personal loans, the following types of loans can all be outstanding loans: Recommended: Advantages and Disadvantages of Personal Loans 

Outstanding Loan vs Personal Loan Interest Rates 

The interest rate of a loan outstanding is whatever was specified in the loan agreement. Unless you choose a variable interest loan, your interest rate will stay the same no matter how far along in the payment process you are. The best personal loan interest rates currently range anywhere from 3% to 36%, depending on the lender and qualifications of the borrower.

Outstanding Loan vs Personal Loan Term Length

Unless you reach a debt settlement (when your lender agrees to settle your debt on modified terms), the term length of your outstanding loan is whatever was specified in the loan agreement. If you took out a personal loan with a loan term of five years, for example, the outstanding personal loan will take five years to pay off. If you’ve been making payments for two years, the remaining term length is three years.

How Does an Outstanding Loan Impact Your Credit?

There are a few ways in which an outstanding loan can both help and hurt your credit profile. These include:
  • Payment History FICO® credit scores are impacted the most by a borrower’s payment history, which accounts for 35% of a credit score. On-time payments on an outstanding loan can help borrower’s build credit. However, the opposite is also true: Any missed or late payments can have a negative effect on a borrower's credit. 
  • Amounts Owed The amount of debt a borrower owes also contributes to their scores. This includes the amount owed on all accounts, including outstanding loans and credit cards. It also looks at credit utilization, which is the amount you owe compared to how much credit you have available. For FICO credit scores, amounts owed accounts for 30% of a credit score. 
  • Credit Mix 10% of a person’s credit score is calculated by determining their credit mix. Having a mixture of both revolving credit (credit cards) and installment credit (outstanding loans) can have a positive impact on a borrower’s credit profile. 

Do You Need Collateral for an Outstanding Loan?

Collateral is an asset that a lender accepts as security for a loan and is needed for any type of secured loan. However, there are no-collateral personal loans on the market that do not require the borrower to pledge any assets.If the original loan required collateral, that collateral is still on the line as long as the loan is outstanding.  

Outstanding Loan Example

If a person borrows ​$10,000​ from a bank to make home improvements and has paid back ​$5,000​, it means they currently have an outstanding loan of $5,000. The loan will remain an outstanding loan until the entire amount (principal plus interest/fees) is paid off.

Outstanding Loan vs Personal Loan: Which Is Better? 

An outstanding loan may be a personal loan, so neither is better than the other. Once any type of loan has been disbursed, it becomes an outstanding loan, which requires regular payments (principal plus interest) until it is paid off. A personal loan, however, can be used to consolidate other types of outstanding loans into one loan, with one payment. Here’s a look at how it works.

Debt Consolidation

A personal loan can be used to consolidate all outstanding loans, including credit cards, auto loans, and student loans. The benefits of consolidating your debt include faster, more streamlined payoff and, potentially, lower interest payments. If you take out a personal loan to consolidate your other outstanding loans, you’ll then only have one outstanding loan.  

Interest Rates

Using a personal loan to consolidate other outstanding loans may be beneficial if you are able to get a lower interest rate than you are currently paying on your other debts. This might be possible if your credit score has improved since applying for those other loans. If you are able to secure a lower rate, you may be able to lower your monthly payments and reduce your total loan costs. To see if this is possible, you may want to shop around and compare personal loan interest rates to get a sense of what rates and terms you might qualify for.

Payment Methods

Whether or not you consolidate several outstanding loans into one, it’s important to make your payments on time and in full each month. Missed or late payments can lead to extra charges, and will likely get reported to the consumer credit bureaus. Setting up autopay for an outstanding loan can help ensure you never miss a payment due date and that the loan will be fully paid off by its maturity date.

Applying for a Personal Loan

When applying for a personal loan, lenders will typically require the following paperwork and information:
  • Personal information
    • Social Security Number
    • Birthday
    • Full legal name
  • Loan application
  • Proof of identity
    • License
    • Passport
    • Government issued ID
  • Employer contact information
  • Paystubs
  • Tax returns
  • Proof of address

The Takeaway

An outstanding loan is a loan that has not been paid off yet. The borrower is still responsible for monthly payments and will be until the loan principal (as well as any accompanying fees and interest) is paid off in full. While a loan is outstanding, it can affect a borrower’s DTI, credit scores, and borrowing power. 

3 Personal Loan Tips

  1. Personal loan interest rates vary from lender to lender, but generally depend on your credit score. With one online application, Lantern by SoFi makes it easy to find and compare the personal loan interest rates that you qualify for.
  2. If the interest rates you’re being offered seem too high, try lowering the loan amount. Generally, the larger the loan, the greater the risk for lenders, who likely charge a higher interest rate for the increased risk level.
  3. Don’t assume that if you have bad credit, you can’t get a personal loan. There are lenders who specialize in bad credit loans.

Frequently Asked Questions

What are outstanding loans?
How do outstanding loans work?
What is an example of an outstanding loan?
Photo credit: iStock/sturti

About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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