Can you explain what this means?

[Anonymous]

Hi I’m trying to get a personal loan and I want to make sure that any payment in addition to the monthly payment is going straight to the principal.
This is what the promissory note says “If you prepay any part of your loan, the amount you pay will be applied first to Unpaid Fees and costs, then to Unpaid Interest, and then to Current Principal”
Thanks

[Anonymous]

Sure.  Loan balances (as well as credit cards) have three parts to them:

      * Fees

      * Interest

      * Principal

Loans and credit cards can both have late fees.  Credit cards can have annual fees.  Loans can have origination fees or inactivity fees.

Interest is how much interest you are being charged that month based on the current balance.

Principal is how much you owe on the account aside from fees and interest. 

That statement you refer to is saying that if your balance is $900 and you make a $70 payment, you shouldn't expect your balance to go down to $830.  First the $70 will be used to pay any fees you owe.  Then it will be used to pay this month's interest.  Only after that will whatever is left over be used to pay down the principal.

[Anonymous]

Thanks , that’s clear, but what about additional payments? Will it go to my principal?

[Anonymous]

I would call the bank and ask them.  Be sure to speak with a loan officer.  It is possible that a big lump sum payment would go to pay off the interest you would have owed had you paid all the 48 payments (in a four year loan say). 

Most banks, however, will make you pay only the current interest owed and then they will reduce the principal by the remainder.

PS.  Are you chiefly interested in getting this loan to help your score?  Or do you actually need the money?  If it is only the score (and you don't need the money) we can walk you through the best lender to choose.

[Anonymous]

I’m consolidating my debt and will pay That loan faster making extra payments. I already talk to the bank and they explain that After the monthly payments what extra payment would go the principal.
I posted the question because I want to be clear about that.
Thank you, you’ve been very helpful !