interest calculation?

[mcampbell14]

Can someone tell/show me how paying extra payments towards the principal of an installment loan is more beneficial than extra payments that pay accrued interest before principal? An example would be extremely helpful! 

[vanillabean]

I wasn't aware that you could prepay on the interest!

[mcampbell14]

It is not so much "pre paying" interest. it is just when loan providers automatically use an extra payment to pay interest rather than principal since it makes them more money (so im told. This difference in money is what im trying to figure out)

[vanillabean]

I see; "interest before principal” simply means the regularly scheduled distribution of principal and interest for a payment.

So if you make extra of such payments, you are effectively paying interest for a period of time during which you are not borrowing the money! Now, why would you do that? With payments applied towards the principal, you are only paying interest for the time you are borrowing any given portion of the principal.

Just google "interest before principal”, e.g. here.