The worked question on this page is original educational practice. It is not represented as a question from an official previous-year examination paper.
01 / UNDERSTANDING
Review the question
Write an original instalment question that tests the difference between cash paid and principal reduced. Use the full instalment as a distractor for the principal-repayment question. An original checkpoint is: How much principal is repaid by the stated instalment? Supported answer: 500 units. Explain the decisive fact, then alter one condition and solve again. This is an original practice method, not a claim that the question appeared in an official past paper.
02 / UNDERSTANDING
The concept in context
Real loan schedules depend on contractual rates, dates, fees and rounding; the example uses explicitly simplified assumptions. A useful study check is to identify the period rate and opening principal, then update principal and reconcile the movement. Explain why the method fits the stated facts before applying it to a changed situation.
03 / UNDERSTANDING
A worked learning case
A fictional loan begins a month with principal of 10,000 and a stated monthly interest rate of 1%. The month’s interest is 100. An instalment of 600 therefore repays 500 of principal, leaving 9,500 before any other adjustments. Subtracting the full 600 from principal would incorrectly ignore the interest component included in the payment.
ORIGINAL EDUCATIONAL PRACTICE
Try it before you check.
How much principal is repaid by the stated instalment?
Show the answer and reasoning
500 units.
The period interest is 10,000 times 1%, or 100. Of the 600 instalment, that leaves 500 for principal repayment. Outstanding principal becomes 9,500 under the simplified terms. This allocation explains why the instalment and principal reduction differ; it is not a complete schedule for an actual loan with additional contractual details.
Two traps to watch for.
- Subtracting the entire instalment from principal.
- Applying an annual rate as though it were a monthly rate.
YOUR TOPIC-SPECIFIC LEARNING MAP
Learn from the attempt
Identify the period rate and opening principal.
Separate interest from the instalment.
Update principal and reconcile the movement.
Explain the idea, apply it to a new situation, then check what changed in your reasoning.
BANKERS TUTORIAL · SOURCE NOTES
Keep the source alongside your notes.
Official links provide subject context and authoritative reference material. This guide’s explanation, scenario and question are original Bankers Tutorial learning content.
- www.rbi.org.in https://www.rbi.org.in/commonman/images/FAME%20Booklet%20second%20edition/FAME%20Booklet%20English/FAME30072020.pdf
- www.rbi.org.in https://www.rbi.org.in/commonperson/english/Scripts/FAQs.aspx
For Banking foundations preparation, check the current official notice before relying on changing dates, rules or examination requirements.
