Better to pay ahead on payments, pricincpal, or interest?

I have a variable interest business loan that I want to be done with. Its a 10 year loan with 8.5 years left. I pay monthly on it and most months barely make the payment. I however have made some changes and should see a larger cash flow within the next few months. I'm wondering how I should go about paying down the loan. Should I just make payments ahead of time, should I put down the extra on the principal of the loan, or should I pay ahead on the interest? I'm not sure what the smartest move would be.

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  • Anonymous
    1 decade ago
    Favorite Answer

    Pay extra on the principle by writing a seperate check clearly stating 'Principle Only' on it. By doing so you will reduce the principle faster and sharply cut the interest charged on the reduced balance.

  • 1 decade ago

    if you have long term loan, the most logical is to pay down your principal. that way, your future interest payment will be lessened.

    paying installment ahead is just delaying process and you should get some kickback by paying ahead, ie discount, etc. i would pay down the principal and re calculate the installment (if that is allowed). you will end up paying less future installment that way.

  • 3 years ago

    completely relies upon on how straight away and how a lot you're paying on the critical or how low the pastime fee is. reason I say that's that you may pay a $one hundred more beneficial in course of the critical yet relying on how a lot you owe, the pastime for any given month would were over $one hundred meaning your fee wasn't extremely some thing "more beneficial" yet replaced into basically protecting pastime. frequently speaking in case you get a SMOKING pastime fee it should be more beneficial to take that until eventually you're making some extremely large critical funds or plan on paying off your finished personal loan rapidly.

  • 1 decade ago

    Check the terms fo your loan clearly, some loans if u choose to repay earlier, they will penalise you, especially for long term loan involving huge sum of money.. If the terms are laid down, and not flexible, i'd suggest u invest ur money, provided u have good financial knowledge of course.. Otherwise ur money will just go down the drain..=)

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  • 1 decade ago

    I have always heard it's best to pay extra on the principle, so it comes down faster. Then the interest will come down too.

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