LOANS
How extra loan payments work
Extra payments can reduce the outstanding principal earlier than scheduled. When interest is calculated from the balance, a lower balance can reduce future interest charges.
What happens to the balance?
An additional principal payment reduces the amount still outstanding. The exact treatment depends on the loan agreement and payment timing.
Why interest can fall
When interest is calculated from a lower balance, less interest may accrue in subsequent periods in a standard amortising model.
Check the agreement
Some products have rules around additional payments, settlement costs or payment allocation. Use the actual contract for those terms.
Source and review note
Time-sensitive rules should be checked against the current official source and the applicable date. This page is intended as general educational information.