A loan payment can contain two different things
A loan payment often combines interest with repayment of principal, the amount still owed. If a ₹10,000 balance incurs ₹100 of interest and the borrower pays ₹1,000, only ₹900 reduces the principal. The remaining balance becomes ₹9,100, assuming no additional fees or borrowing.
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Not every rupee reduces the debt
Interest is the charge for borrowing over a period. Principal is the outstanding borrowed amount. A payment can cover both, so the payment size is not necessarily the amount by which the debt falls.
Take a ₹10,000 balance with a hypothetical monthly interest rate of 1%. Interest for the month is ₹100. A ₹1,000 payment covers that interest and repays ₹900 of principal.
If the next month's interest is calculated on the reduced ₹9,100 balance, it becomes ₹91, assuming the rate stays unchanged.
This is the basic mechanism behind many reducing-balance loans. Actual repayment schedules also depend on payment dates, calculation conventions and contract terms. Fees or missed payments can change how much of a payment reaches the principal.