If someone has an installment loan with equal, fully amortizing payments, and the borrower pays extra each month, how does the creditor decide whether to apply the extra as a prepayment to principal or as "paying ahead" to the next monthly payment due? For example, if the monthly payment is $100/m due on the 1st of each month, and the borrower makes this series of payments, how does the creditor decide how to apply the extra amount each month?
Pymt Date |Pymt Amt 1/1/2000 |$110 |Does this reduce the balance by an extra $10? 2/1/2000 |$100 |Could the B. have paid $90 here because of the extra |$10 paid the previous month? 2/15/2000 |$50 |The B. is current for Feb., so is this a prepayment |or does it go to the $100 due for March? 3/25/2000 |$200 |Is the B. paying March + extra? Or paying Mar + Apr.? |Would the answer change if the B. owed a $5 late fee?