how is payment broken up between principle and interest if you pay more more than monthly amount?


so, let's say the loan is $10,000 with 5% APR and 60 payments.

Now according to amortization formula, the monthly payment is $188.71.

let's say on your 3rd payment, you decided to pay $188.71 plus $2,000. How is the 4th payment broken up between principle and interest?

I know the monthly payment is still $188.71 but this amount was based on $10,000. With the extra $2000, the principle went down significantly

6 Answers

  • 8 months ago

    In every amortized loan I've ever hard, the payments never change. If you pay extra toward the principal, the result is that the extra amount is deducted from the principal owed at the END of the loan, meaning you save whatever interest you would have paid at that time.

    So, if you overpaid your third installment by $2,000 (approximately ten times the payment owed), your loan's final 12 payments or so would vanish, as they are mostly (98 percent or more) pure principal. With 12 payments left you would have normally owed a total of $2,025 (principal and interest), but $51 of that is interest that you would no longer owe.

  • Erik
    Lv 7
    9 months ago

    There's really no point in trying to figure it out, because once interest is added to your loan, it becomes principal.  So it doesn't really matter.

  • Judy
    Lv 7
    9 months ago

    The extra goes to principal.

  • Anonymous
    9 months ago

    You will drive yourself crazy trying to make sense of it. Suffice it to say, any & all early payments save you interest.

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  • 9 months ago

    Generally, its applied per the existing terms of the contract.  Sometimes, they reduce all remaining payments.  Sometimes they take payments off of the end.  Sometimes, you just wouldnt have to make a payment for a while...

    Read the contact or just give them a call and ask. 

  • Judith
    Lv 7
    9 months ago

    You specify that you want the amount over $188.71 to be applied toward the principle.

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