Additional Principal Payment


An additional principal payment describes the portion of a monthly payment that is above the minimum amount and is applied towards the principal of the loan. Borrowers submit additional principal payments in order to decrease the loan balance at an accelerated rate as well as to shorten the time that it takes to pay the loan off. If one does not make additional principal payments, the loan will be paid off according to the original repayment schedule. However, by allocating an amount that is larger than the required monthly payment amount, the principal loan balance is sure to decrease at a faster rate. Ultimately, borrowers can save thousands of dollars in interest charges by sending regular additional principal payments. Some loans include a prepayment clause. Borrowers should inquire with the lender to find out if there is any penalty for paying the loan off early.
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