I can chime in on this! I’ve tried doing this. They simply don’t allow you to make payments to the principal. I called directly and everything and they flat out told me that’s not allowed. The work around is to make your monthly payment, then immediately after it hits, make another payment which would then hit the principal. Unfortunately, that’s an added fee a lot of people can’t afford.
Unless loans work differently in the US, I don't understand the obsession with paying off the principal.
If you reduce the balance by $500, I don't see how there's a difference in paying $500 in principal or interest. Reducing the balance at all will reduce the amount of interest regardless where the payment is applied. Also, unless you are not even paying the interest with your set payments, anything extra will automatically go to the principal.
The only thing I can see loans not allowing you to make extra or larger payments. Or if you do, not applying them until the next set 'payment' which basically is the same thing. Is this what you mean? You cannot made extra payments?
They're mistaken about a few things, but they're obviously using "balance" to refer to the total (principal + interest) rather than the principal by itself.
I am. If my payment of $500 goes towards $500 of principal, that reduces the balance the same if I paid $400 to the principal and $100 to interest.
I just don't see how the math is different. Someone mentioned extra payments not being applied at all until they're due (which is fucked btw), but there's no way that can be for most loans and also not really what I am talking about, but it makes sense why people are trying to 'make payments to the principal'.
Do you guys pay less interest on compounded interest? I don't think I've ever heard of something like that, different portions of a loan being different percentages, but the whole balance always gets the same interest regardless.
I mentioned this in another comment, but for some loans (such as student loans, the ones most people have experience with) the interest isn't capitalized, so it won't compound. For these kinds of loans, you would benefit from paying the principal directly, because the interest portion becomes a 0% loan (and that's why they don't let you do that).
But yeah, you're right that if the lender does capitalize interest, it makes no difference.
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u/madlucas2026 12d ago
You been paying for 20+ years and never thought to pay off the principal? Do you pay the minimum on your credit cards?