What Does Money Toward the Principal of the Loan Mean?

by Neil Kokemuller
Making extra principal payments can save you significantly on interest.

When you repay a loan, a portion of your regular monthly payment usually goes toward principal, while some of the money goes toward interest charges. You typically have the ability to make extra payments toward the principal. Putting more money toward principal means that you reduce your principal balance -- the portion of the original loan amount left to be paid off -- more quickly than if you just make minimum payments.

Extra Toward Principal Benefits

Paying extra money toward your principal typically expedites your repayment period and saves you money on interest. On an amortized mortgage, extra put toward principal increases the amount of future payments that go toward principal. Over time, you can save tens of thousands of dollars in interest on a mortgage loan by paying extra on the principal.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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