When you repay a loan, a portion of your regular monthly payment usually goes toward principal, while some of the money goes toward interest charges. You typically have the ability to make extra payments toward the principal. Putting more money toward principal means that you reduce your principal balance -- the portion of the original loan amount left to be paid off -- more quickly than if you just make minimum payments.

Extra Toward Principal Benefits

Paying extra money toward your principal typically expedites your repayment period and saves you money on interest. On an amortized mortgage, extra put toward principal increases the amount of future payments that go toward principal. Over time, you can save tens of thousands of dollars in interest on a mortgage loan by paying extra on the principal.