Additional Principal Payment

Definition - What does Additional Principal Payment mean?

An additional principal payment is a payment on a loan that is made in excess of the minimum monthly payment. This type of payment acts to pay down the principal before interest is able to accrue on it. In a legal context, any additional principal payment must be applied to the principal and not the interest. It is only considered an additional principal payment if the payments are up to date. Some loans are for a fixed term and will not allow additional principal payments.

Justipedia explains Additional Principal Payment

Through making additional principal payments on a loan, the overall term of the loan is reduced and by effect there will be less interest gained on the principal.

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