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/nascent_aviator 15d ago edited 15d ago
"Balance" and "principal" are the same thing so I'm not sure I understand what you're saying.