Why does the principal/interest applied to my balance fluctuate in spite of making payments on-time?

Question

In my first payment on 6/03/2011, the principal applied to my balance was $261.11 and the interest was $221.64. As I kept making the payment on-time, the principal applied to my balance kept increasing and the interest kept decreasing. But as you can see on 11/03/2011, the money applied to my principal went down and the interest taken went up. The same thing happened on 04/03/2012.

I thought as I kept making payments on-time, the applied interest should decrease every time and the applied principal should increase. Am I wrong?

This is how my loan payment history statement looks like:

**04/03/2012    Payment Received $482.75
    Interest    $160.96      
    Principal   $321.79**        
03/02/2012  Payment Received $482.75
    Interest    $142.77      
    Principal   $339.98      
02/03/2012  Payment Received $482.75
    Interest    $154.97      
    Principal   $327.78      
01/04/2012  Payment Received $482.75
    Interest    $157.34      
    Principal   $325.41      
12/05/2011  Payment Received $482.75
    Interest    $169.92      
    Principal   $312.83      
**11/03/2011    Payment Received $482.75
    Interest    $166.60      
    Principal   $316.15**        
10/03/2011  Payment Received $482.75
    Interest    $141.54      
    Principal   $341.21      
09/07/2011  Payment Received $482.75
    Interest    $165.26      
    Principal   $317.49      
08/08/2011  Payment Received $482.75
    Interest    $172.73      
    Principal   $310.02      
07/08/2011  Payment Received $482.75
    Interest    $197.05      
    Principal   $285.70      
06/03/2011  Payment Received $482.75
    Interest    $221.64      
    Principal   $261.11      

Answer 1

The payments might be on time, but the aren't made the same numbers of days apart:

• $142.77 in interest from February 3rd to March 2nd is 28 days @ 5.0899 per day
• $154.97 in interest from January 4th to February 3rd is 30 days @5.166 per day

The percentage of the daily payment for interest is decreasing, but the numbers of days wasn't constant.

Answer 2

I think they're compounding the interest daily. That means you have to look at the number of days between payments to judge how much the interest charge is.

From February 3 to March 2 is 28 days (2012 was a leap year). From March 2 to April 3 is 32 days. That's an increase of about 14% in number of days between payments, which accounts reasonably well to the ~$18 difference in interest charge.

Daily compounding also explains the minor fluctuations in the other interest charges. I think if you compute interest/day for each month, you'll find that it is, indeed, decreasing over time.