Principal-only payments are applied to the remaining principal balance of a loan. When you make principal-only payments, the amount owed is reduced, but the final due date of the loan does not change.

Is it better to pay the principal or interest?

1. Save on interest. Since your interest is calculated on your remaining loan balance, making additional principal payments every month will significantly reduce your interest payments over the life of the loan. ... Paying down more principal increases the amount of equity and saves on interest before the reset period.

What is a principal payment?

Principal is the money that you originally agreed to pay back. Interest is the cost of borrowing the principal. Generally, any payment made on an auto loan will be applied first to any fees that are due (for example, late fees). ... Then the rest of your payment will be applied to the principal balance of your loan.