§ 8945 Principal Payment Credits

• •If you pay more than your regular payment on a loan, the extra money goes toward the main amount you owe, not the interest.
• •This helps you pay less interest over time because the extra payment reduces the amount you owe.
• •It’s like paying off a little bit of your loan early, so you don’t have to pay as much extra money later.

You have a loan for a car, and your monthly payment is $200. One month, you pay $300 instead.

The extra $100 goes toward the main amount you owe on the car, not the interest. This means you’ll pay less interest in the future because you owe less money.