Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. Join them; it only takes a minute:

Sign up
Here's how it works:
  1. Anybody can ask a question
  2. Anybody can answer
  3. The best answers are voted up and rise to the top

Lets say your loan payment is $100 a month.

What is the differences between:

  1. making a regular payment for $120
  2. making a regular payment for $100 plus an additional principal reduction payment for $20

Is it the same thing?

share|improve this question
+1 Good question, thanks for asking it. – C. Ross Apr 7 '10 at 12:10
up vote 6 down vote accepted

Choice 1 will likely make the payment due and also apply $20 to the next month's payment due. So you'd owe $80 in month 2.

Choice 2 will make the payment due and then lower the principal by that $20. At 6% over 30 years, that $20 will knock off more than $100 off the last payment due.

share|improve this answer
Thanks, I was hoping this wasn't the case. I am being royally screwed on my student loans then, they don't allow payments to be made on the principal. – Tim Apr 7 '10 at 12:51
"Choice 1 will likely make the payment due and also apply $20 to the next month's payment due." This is not true in my case. The $20 goes toward the principal and my next payment due is still $100. In this situation, is there any difference between the $120 regular payment and the $100 regular payment + $20 principal-only payment? – ThisSuitIsBlackNot Jan 8 at 16:08
Thus my choice of words - "likely" means just that. In your case, the bank doesn't require the implicit assignment of extra payment to principal, they do it automatically, which is good – JoeTaxpayer Jan 8 at 19:46

Your Answer


By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.