2

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      
  • How is the interest rate on the loan determined? Perhaps it varies with a prime rate of some form? – JB King May 21 '13 at 21:51
  • Its fixed interest rate. – Asdfg May 21 '13 at 21:52
  • What are the ** mean? – JB King May 21 '13 at 21:53
  • I tried to make those transactions bold as that's where principal/interest proportion changes – Asdfg May 21 '13 at 21:55
  • What country are you in? – JTP - Apologise to Monica May 22 '13 at 1:52
6

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.

1

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.

protected by Chris W. Rea Apr 12 '16 at 16:52

Thank you for your interest in this question. Because it has attracted low-quality or spam answers that had to be removed, posting an answer now requires 10 reputation on this site (the association bonus does not count).

Would you like to answer one of these unanswered questions instead?

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