query: does interest payment on loan stay the same if I pay early

positive: The typical case would be - as you expected - that the interest goes down equally dramatically, and you would pay much less interest. Note that that does not remove your obligation to pay the full 1000 every month - even though you could argue that you are 90 months ahead in paying, you still need to deliver 1000 a month, until it is fully paid. Some mortgages are made differently - they do not allow that. Basically, if you pay a large amount at once, it is considered a 'pre-payment' for the next x month. As a result, you are now x months ahead (and could stop paying for that much time), but your interest stays high. The latter type 'protects' the bank against 'losing' the interest income they already planned for. As a balance, those type of mortgages are typically slightly cheaper (because the bank is in a better position). You did not specify a country; in Germany, typically all mortgages are of the second type; but - you can get 1.35% mortgages... In the US, most are the first.  You need to check which type you have, best before you pay a large amount. In the latter case, it is better to invest that money and use it to pay off as soon as you reach the threshold; in the first case, any extra payoff is to your advantage.

positive: It depends on the type of loan.  Fully amortized loans have a schedule of payments don't recalculate as you pay.  If you want to make an additional payment you need to contact the lender to apply your payment toward principle and reamortize the loan.  Otherwise all your additional payment will do is change the amount due on your next payment, or push out your next payment due date. Regarding interest calculation, you owe interest on the principle outstanding.  Say you have a 10 year loan (120 Months), at 5% APR, and a $1,000 payment (this means you borrowed roughly $94,000) Each month the amount of interest owed reduces because there is less principle outstanding.  The reason loans are amortized like this is so the borrower has a predictable, known, monthly amount due.

negative: I don't know much about how student loans work, so there might be some caveats (e.g. does the interest rate stay constant, do you get a discount if you pay off early etc.). Ignoring those caveats: The interest on you student loan looks quite small. Depends a bit where you are in the world, but it seems very likely that you can get more interest than that on a 100% guaranteed investment form, e.g. term bank deposits. So, it seems a no-brainer to not pay back you student loan and invest the money securely for a higher interest rate instead. Similar situation when you think about taking the money as a down-payment for a house. More factors come into play here:

negative: It has nothing to do with forcing people to pay off their debt; in that case it would make better sense to have people pay off debt rather than interest. It is because you want to have your actual payment stay the same each month, which is easier for the vast majority of people to comprehend and put into their budget. It is called an annuity in Finance terms. In theory you could use another method - eg. pay of the same amount of debt each month - then your interest payments will decrease over time. But in that case your monthly payment (debt + interest) will not be stable - It will start of high and decrease a little bit each month. With an annuity you have a constant cashflow. In Finance you generally operate with three methods of debt repayment: Annuity: Fixed cashflow. High interest payment in the beginning with small debt payments - later it will be reversed. Serial loan: Fixed debt payments. Debt payments are equally spread out accross the period - interst is paid on the remaining debt. Cash flow will decrease over time, because interest payments become smaller for each period. Standing loan: You only pay interest on the loan, no debt payments during the period. All debt is payed back in the end of the loan. In Europe it is common practise to combine a 30 year annuity with a 10 year standing loan, so that you only pay interest on the loan for the first 10 years, thereafter you start paying back the debt and interest, the fixed amount each month (the annuity). This is especially common for first-time buyers, since they usually have smaller salaries early in life than later and therefore need the additional free cash in the beginning of their adult life.

negative: Can I give the bank the $300,000 to clear the mortgage, or must I pay off the total interest that was agreed upon for the 30 year term? This depends on the loan agreement.  I had one loan where I was on the hook regardless.  Early payment was just that, early payment.  It would have allowed me to skip months without making payments (because I had already made them).   Most loans charge interest on the remaining balance. If you pay early, it reduces your balance, decreasing the interest.  If you pay it off early, there's no more balance and no more interest.   I'm curious why the bank would let you do this, since they will lose out on a lot of profit. But they have their money back and can loan it out again.  If they maintained the loan, they aren't guaranteed of getting their money.   Interest is rent that you pay for the loan of the money.  Once you return the money, why pay more rent?  While some apartment leases require paying through the entire term, most allow for early termination with proper notice.  You give back the apartment; the landlord rents it out again.  Why should they get paid two rents?   Another issue is that if someone with a mortgage switches jobs to a new location, that person will likely prefer to sell the current house and buy one in the new location.  This is actually the typical way for a mortgage to end.  If the bank did not allow that, they would essentially force the family to rent out the mortgaged house and rent a new house.  So the bank would go from an owner-occupied house that the inhabitants want to keep maintained to a rental, where the inhabitants only care to the extent of their legal liability.   Consider the possibility that the homeowners lose one of their jobs.  They can't afford the house.  So they sell it and close out the mortgage.  Should the bank refuse to allow the sale and attempt to recover the interest from the impoverished homeowners?  That situation would almost guarantee an expensive foreclosure.   Once there is any early termination clause for any reason, it makes sense for the bank to structure the loan to include the possibility.  That way they don't have to investigate whatever excuse is involved.  Loan regulators may require this as well, particularly on mortgages.

negative: "Basically, the easiest way to do this is to chart out the ""what-ifs"". Applying the amortization formula (see here) using the numbers you supplied and a little guesswork, I calculated an interest rate of 3.75% (which is good) and that you've already made 17 semi-monthly payments (8 and a half months' worth) of $680.04, out of a 30-year, 720-payment loan term. These are the numbers I will use. Let's now suppose that tomorrow, you found $100 extra every two weeks in your budget, and decided to put it toward your mortgage starting with the next payment. That makes the semi-monthly payments $780 each. You would pay off the mortgage in 23 years (making 557 more payments instead of 703 more). Your total payments will be $434,460, down from $478.040, so your interest costs on the loan were reduced by $43,580 (but, my mistake, we can't count this amount as money in the bank; it's included in the next amount of money to come in). Now, after the mortgage is paid off, you have $780 semi-monthly for the remaining 73 months of your original 30-year loan (a total of $113,880) which you can now do something else with. If you stuffed it in your mattress, you'd earn 0% and so that's the worst-case scenario. For anything else to be worth it, you must be getting a rate of return such that $100 payments, 24 times a year for a total of 703 payments must equal $113,880. We use the future value annuity formula (here): v = p*((i+1)n-1)/i, plugging in v ($113880, our FV goal), $100 for P (the monthly payment) and 703 for n (total number of payments. We're looking for i, the interest rate. We're making 24 payments per year, so the value of i we find will be 1/24 of the stated annual interest rate of any account you put it into. We find that in order to make the same amount of money on an annuity that you save by paying off the loan, the interest rate on the account must average 3.07%. However, you're probably not going to stuff the savings from the mortgage in your mattress and sleep on it for 6 years. What if you invest it, in the same security you're considering now? That would be 146 payments of $780 into an interest-bearing account, plus the interest savings. Now, the interest rate on the security must be greater, because you're not only saving money on the mortgage, you're making money on the savings. Assuming the annuity APR stays the same now vs later, we find that the APR on the annuity must equal, surprise, 3.75% in order to end up with the same amount of money. Why is that? Well, the interest growing on your $100 semi-monthly exactly offsets the interest you would save on the mortgage by reducing the principal by $100. Both the loan balance you would remove and the annuity balance you increase would accrue the same interest over the same time if they had the same rate. The main difference, to you, is that by paying into the annuity now, you have cash now; by paying into the mortgage now, you don't have money now, but you have WAY more money later. The actual real time-values of the money, however, are the same; the future value of $200/mo for 30 years is equal to $0/mo for 24 years and then $1560/mo for 6 years, but the real money paid in over 30 years is $72,000 vs $112,320. That kind of math is why analysts encourage people to start retirement saving early. One more thing. If you live in the United States, the interest charges on your mortgage are tax-deductible. So, that $43,580 you saved by paying down the mortgage? Take 25% of it and throw it away as taxes (assuming you're in the most common wage-earner tax bracket). That's $10895 in potential tax savings that you don't get over the life of the loan. If you penalize the ""pay-off-early"" track by subtracting those extra taxes, you find that the break-even APR on the annuity account is about 3.095%."

negative: Forget about terms.  Think about loans in terms of months.  To simplify things, let's consider a $1000 loan with .3% interest per month.   This looks like a ten month term, but it's equally reasonable to think about it on a month-to-month basis.  In the first month, you borrowed $1000 and accrued $3 interest.  With the $102 payment, that leaves $901 which you borrow for another month.  So on and so forth.   The payoff after five payments would by $503.54 ($502.03 principal plus $1.51 interest).  You'd save $2.99 in interest after paying $13.54.  The reason why most of the interest was already paid is that you already did most of the borrowing.  You borrowed $502.03 for six months and about $100 each for five, four, three, two, and one month.  So you borrowed about $4500 months (you borrowed $1000 for the first month, $901 for the second month, etc.).  The total for a ten month $1000 loan is about $5500 months of borrowing.  So you've done 9/11 of the borrowing.  It's unsurprising that you've paid about 9/11 of the interest.   If you did this as a six month loan instead, then the payments look different.  Say  You borrow $1000 for one month.  Then 834 for one month.  So on and so forth.  Adding that together, you get about $168.50 * 21 or $3538.50 months borrowed.  Since you only borrow about 7/9 as much, you should pay 7/9 the interest.  And if we adding things up, we get $10.54 in interest, about 7/9 of $13.54.   That's how I would expect your mortgage to work in the United States (and I'd expect it to be similar elsewhere).  Mortgages are pretty straight-jacketed by federal and state regulations.   I too once had a car loan that claimed that early payment didn't matter.  But to get rid of the loan, I made extra payments.  And they ended up crediting me with an early release.  In fact, they rebated part of my last payment.  I saved several hundred dollars through the early release.  Perhaps your loan did not work the same way.  Perhaps it did.  But in any case, mortgages don't generally work like you describe.

negative: "We payed off our Mortgage early...at first in small extra payments to principal, and finally a lump sum.  Each extra payment to principal reduced the balance, and reduced every payment going forward.  I have, somewhere, an excel spreadsheet where I tracked this...  - =CUMIPMT((interestRate/12),term,pymtNumber,balance,balance,0) computed the interest payment due  - =currentPrincipal + CUMIPRINTresultAbove computed the monthly principal payment Occasionally I would update the month-ending Principal balance against what the mortgage company told me.  It was usually off by a little.   My mortgage company required me to specifically contact them for a payoff amount before I wrote the final check.   I've never heard of a mortgage where prepayment of all expected interest following the original schedule is required.  I would guess it is against federal (US) law.  Lets think about that for a moment...  out of ""interest"", I recently computed that for our 30 year loan at 6-5/8% on about 145, we payed a total of 106000 in interest.  That include a refi to 4-7/8 10-years in to a 15-year loan, and paying it off 20 years after the original loan was granted. As far as not paying all the theoretical interest due...  - If they get a fixed dollar amount of service interest back, there's no incentive to me to pay on-time.  I owe the same amount if I pay it today or if I pay it 6 months late, after I gambled the mortgage money and finally won.  (yea, I know they could write the mortgage to penalize me for paying late, but I'm ignoring that)  - if you were requried to pay off all the interest that might accrue, how could you ever sell your home, or refinance, for that matter?  When I refi'd, the new holder payed the old holder 98,000.  If the original holder had required prepayment of all the interest that would be accrued to the original schedule, the new mortgage would've been 200k.  It would just never be a good deal to buy a home if mortgages worked under that term. I have had a car loan that worked differently -- they pre-computed the total interest due and then divided it over the term of the loan equally.  I could pay off early and they stopped collecting interest."

negative: I would just do a loan for a different number of years on your new mortgage. For example, if you just spent 10 years paying off your first house, then for your second, close the first mortgage upon selling, and then open a 20 or 25 year mortgage and the loan end date as well as the payment should remain similar. This would be more do-able if you paid ahead a little to compensate all the early on interest you have to eat. So if you want to finish around the same time, you could look into doing that since you'll have more equity to make a stronger down payment.

negative: "This election only applies to payments that you make within 120 days of your having received loan money. These wouldn't be required payments, which is why they are called ""early"" payments. For example, let's say that you've just received $10,000 from your lender for a new loan. One month later, you pay $500 back. This election decides how that $500 will be applied.  The first choice, ""Apply as Refund,"" means that you are essentially returning some of the money that you initially borrowed. It's like you never borrowed it. Instead of a $10,000 loan, it is now a $9,500 loan. The accrued interest will be recalculated for the new loan amount.  The second choice, ""Apply as Payment,"" means that your payment will first be applied to any interest that has accrued, then applied to the principal. While you are in school, you don't need to make payments on student loans. However, interest is accruing from the day you get the money. This interest is simple interest, which means that the interest is only based on the loan principal; the interest is not compounding, and you are not paying interest on interest. After you leave school and your grace period expires, you enter repayment, and you have to start making payments. At this point, all the interest that has accrued from the time you first received the money until now is capitalized. This means that the interest is added to your loan principal, and interest will now be calculated on this new, larger amount. To avoid this, you can pay the interest as you go before it is capitalized, which will save you from having to pay even more interest later on.  As to which method is better, just as they told you right on the form, the ""Apply as Refund"" method will save you the most money in the long run.  However, as I said at the beginning, this election only applies if you make a payment within 120 days from receiving loan funds. Since you are already out of school and in repayment, I don't think it matters at all what you select here.  For any students reading this and thinking about loans, I want to issue a warning. Student loans can ruin people later in life. If you truly feel that taking out a loan is the only way you'll be able to get the education you need, minimize these as much as possible. Borrow as little as possible, pay as much as you can as early as you can, and plan on knocking these out ASAP. Great Lakes has a few pages that discuss these topics:"

negative: Most of the bankruptcy is due to taking [or building over a period of time] a loan that one cannot service, if the interest rates rise, then the amount of money to repay the loan increases, when one doesnt pay the revised amount and keeps paying less, the over all debt keeps shooting through the roof ... a lower interest rate means that one can continue to pay the same amount ... and few missed payments do not cause as much as damage as it does when the rates are high.

negative: Well to start with I would make sure that the interest total you are collecting each month is greater than the interest total you are paying each month on your credit card debt.  So if you have $200 a month in interest you pay the credit card company I would make sure that the interest you collect on the loan is more than $200 a month.  And make sure that you use some portion of the principle payment to pay down the credit card debt so that you are still even or ahead of the interest you owe the credit card company. Beyond that I would want the rate to be higher than the borrower could expect from a bank.  This will incentivize the borrower to either pay it off early or refinance the loan through a bank effectively paying it off early for you.  Anything that shifts the risk off of you and onto someone else is in your favor here. You could also implement some sort of final payment fee and reduce this fee by a certain amount (presumably up to 100%) if it is paid off early.  I would graduate that amount so there is still incentive if the buyer misses the original date but still incentive to meet the date.  If the loan was for 10 years then I would probably do around .5% per year early.   I would also get an attorney to draw up the loan paperwork to make sure that you(and potentially your heirs) are covered should you need to recover from a default, bankruptcy, or other potential problems.  I would bet the lawyer fees will save you 5x+ the amount if only in headaches.  And if you are dealing with family the lawyer makes a great fall guy to say I wish I could do that but the lawyer won't let me if the family member tries to take advantage.

negative: "For the mortgage, you're confusing cause and effect. Loans like mortgages generally have a very simple principle behind them: at any given time, the interest charged at that time is the product of the amount still owing and the interest rate. So for example on a mortgage of $100,000, at an interest rate of 5%, the interest charged for the first year would be $5,000. If you pay the interest plus another $20,000 after the first year, then in the second year the interest charge would be $4,000. This view is a bit of an over-simplification, but it gets the basic point across. [In practice you would actually make payments through the year so the actual balance that interest is charged on would vary. Different mortgages would also treat compounding slightly differently, e.g. the interest might be added to the mortgage balance daily or monthly.] So, it's natural that the interest charged on a mortgage reduces year-by-year as you pay off some of the mortgage. Mortgages are typically setup to have constant payments over the life of the mortgage (an ""amortisation schedule""), calculated so that by the end of the planned mortgage term, you'll have paid off all of the principal. It's a straightforward effect of the way that interest works in general that these schedules incorporate higher interest payments early on in the mortgage, because that's the time when you owe more money. If you go for a 15-year mortgage, each payment will involve you paying off significantly more principal each time than with a 30-year mortgage for the same balance - because with a 15-year mortgage, you need to hit 0 after 15 years, not 30. So since you pay off the principal faster, you naturally pay less interest even when you just compare the first 15 years. In your case what you're talking about is paying off the mortgage using the 30-year payments for the first 15 years, and then suddenly paying off the remaining principal with a lump sum. But when you do that, overall you're still paying off principal later than if it had been a 15-year mortgage to begin with, so you should be charged more interest, because what you've done is not the same as having a 15-year mortgage. You still will save the rest of the interest on the remaining 15 years of the term, unless there are pre-payment penalties. For the car loan I'm not sure what is happening. Perhaps it's the same situation and you just misunderstood how it was explained. Or maybe it's setup with significant pre-payment penalties so you genuinely don't save anything by paying early."

negative: Another thing to consider is that paying extra principal (either via one of these services, or by including something extra with your normal mortgage payment and designating that it go to principal rather than be held to reduce next month's payment, or just sending an additional payment to the bank and designating it as reducing the principal) shortens the term of your loan. Is this good? Maybe. Consider that banks lend with a variety of terms. Usually the 15-year fixed rate mortgage has a lower interest rate than the 30-year fixed-rate mortgage, and the 5-year home-equity-loan has an even lower rate. When you prepay your loan, your interest rate stays the same, but the bank gets its money back sooner. This makes more profit for the bank as it can then invest the money in other things. That profit could have been yours if you had made that investment instead of prepaying your mortgage.

negative: "The other answers have touched on amortization, early payment, computation of interest, etc, which are all very important, but I think there's another way to understand the importance of knowing the P/I breakdown. The question mentions the loan payment as ""cash outflow"". That is true, but from an accounting perspective (disclaimer: I am not an accountant, but I know enough of the basics to be dangerous), the outflow needs to be directed to different accounts. The loan principal appears as a liability on your personal balance sheet, which you could use, for example, in determining net worth. The principal amount in your payment should be applied to reduce the liability account. The interest payment goes into the expense account.  Another way to look at it is that the principal, while it does reduce your cash account, can be thought of as an internal transfer to the liability account, thus reducing the size of the liability. The interest payment cannot. Aside: From this perspective, the value of the home is an asset, and the difference between the asset account and the loan liability account is the equity in the house (as pointed out in different language by the accepted answer). Of course, precisely determining the value of an illiquid asset like a house at any given moment pretty much requires you to actually sell it, so those accounts are hard to maintain in real-time (the liability of the loan is much easier to track)."

negative: "I think the idea here is that because of the way mortgages are amortized, you can drop additional principal payments in the early years of the mortgage and significantly lower the overall interest expense over the life of the loan. A HELOC accrues interest like a credit card, so if you make a large principal payment using a HELOC, you will be able to retire those ""chunks"" of debt quicker than if you made normal mortgage payments. I haven't worked out the numbers, but I suspect that you could achieve similar results by simply paying ahead -- making even one extra payment per year will take 7-9 years off of a 30 year loan. I think that the advantage of the HELOC approach is that if you borrow enough, you may be able to recalculate/lower the payment of the mortgage."

negative: "This is a very complicated thing to try to do. There are many variables, and some will come down to personal taste and buying habits. First you need to look at each of the loans and find out two very important things.  Some times you pay a huge penalty for paying off a loan early. Usually this is on larger loans (like your mortgage) but it's not on heard of in car loans. If there is a penalty for early re-payment, then just pay off on the schedule, or at least take that penalty into consideration. Another dirty trick that some banks do is force you to pay ""the interest first"" when making a early payment.  Essentially this is a penalty that ensures you pay the ""full price"" of the loan and not a lessor amount because you borrowed for less time. The way it really works is complicated, but it's not usually to your benefit to pay these off early either. These usually show up on smaller loans, but better look for it anyway.  Next up on the list you need to look at your long term goals and buying habits. When are you going to re-model your kitchen. You can get another loan on the equity of the house, it's much harder to get a loan on the equity of a car (even once the car is paid off). So, depending on your goals you may do better to pay extra into your mortgage, then paying off your other loans early.  Also consider your credit score. A big part of it is amount of money remaining on credit lines/total credit lines. Paying of a loan will reduce your credit score (short term). It will also give you the ability to take out another loan (long term).   Finally, consider simplification of debtors. If something goes wrong it's much easier to work with a single debtor, then three separate debtors. This could mean moving your car loans into your mortgage, even if it's at a higher interest rate, should the need arise. Should you need to do that you will need the equity in your home.  Bonus Points: As others have stated, there are tax breaks for people with mortgages in some circumstances. You should consider those as well. Car loans usually require a different level of insurance. Make sure to count that as well. Taking these points into consideration, I would suggest, paying off the 2.54% car loan first, then putting the extra $419.61 into your mortgage to build up more equity, and leaving the 0% loan to run it's full course. You all ready ""paid for"" that loan, so might as well use it. Side note: If you can find a savings account or other investment platform with a decent enough interest rate, you would be better served putting the $419.61 there. A decent rate ROTH-IRA would work very nicely for this, as you would get tax deferment on that as well. Sadly it may be hard to find an account with a high enough interest rate to make it a more attractive option the paying off the mortgage early."

negative: "@fredsbend, Hope this helps!  ""I understand that a reverse mortgage can be paid out in two ways: A lump sum and monthly payments. I figure that if you take the lump sum, eventually, the bank wants you to start paying it back."" Answer:   Actually, there are 3 payout options, or 4 if you consider a combination payout as another one. There's a lump sum, a line of credit, or the monthly payout, or a combination.  ""I figure that if you take the monthly payments, eventually, the bank stops paying out and wants you to pay it back. In both situations, interest accrues and this is how the bank makes money off of the deal"".  Answer: The only time the monthly payments would stop would be if the borrower defaults on the lenders' terms or they no longer live at home. You are right though, and interest does accrue on whichever payment is decided on. I'm not sure how the lender makes money, probably by the interest, but I know borrowers are protected against high rates and owing more than your house. Here's an article I found that goes over the protections more in detail: https://www.americanadvisorsgroup.com/news/6-consumer-protections-reverse-mortgage-loan-borrowers.  ""But what determines when you have to begin paying back the reverse mortgage? Some sources online seem to say that it's based only on if you die or would like to sell/move. That can't be right in all situations, because you could end up with a massive debt on a property more than its value.""  Answer: There are a lot of protections or regulations in place to protect anyone who takes out a reverse mortgage. One being, you can't owe MORE than your house is valued at during the time of repayment, a reverse mortgage is a non-recourse loan. In the instance that your house is less than you owe, you either sell the home and the proceeds are used to pay the loan and you keep the rest OR if you owe more than the house proceeds of the home go to the lender. Either way, you're not left paying for a ""mortgage"" without the house. In the case the parent, grandparent passes, then the heirs would have a choice of either paying back the reverse mortgage in payments, OR they can sell the house, heirs are protected during this as well to make sure they're not left with major debt in case of anything.  Is there a formula to figure out when the bank stops the monthly payments and then wants it back?  **Answer:**The amount becomes due if loan terms are not met, but the lender will discuss the options if it comes to that.  Is there a different formula for when the lump sum would have to be paid back?""  Answer: Each payout option has the same terms and the same pay back terms. As long as terms are met, the lender can't ask for early repayment."

negative: "Mathematically, the wisest choice is to invest your extra money somewhere else and not pay off your 0% loan early. An extreme example highlights this. Suppose some colossal company offered to loan you a billion dollars at 0 % interest. Would you take it? Or would you say ""No thanks, I don't want that much debt."" You would be crazy not to accept. You could put that money in the safest investments available and still pocket millions while making the minimum payments back to them. Your choice here is essentially the same, but unfortunately, on much smaller scale. That said, math doesn't always trump other factors. You need to factor in your peace of mind, future purchases, the need for future borrowing, your short term income and job security, and whether you think you can reliably make payments on this loan without messing up and triggering fees that wipe out the mathematical advantage of slow paying the loan. You are fortunate because you really can't make a wrong choice here. Paying off debt is never a bad choice IMO. However, it may not always be the best choice."

negative: "Debt increases your exposure to risk.  What happens if you lose your job, or a major expense comes up and you have to make a hard decision about skipping a loan payment?  Being debt free means you aren't paying money to the bank in interest, and that's money that can go into your pocket. Debt can be a useful tool, however.  It's all about what you do with the money you borrow.  Will you be able to get something back that is worth more than the interest of the loan? A good example is your education.  How much more money will you make with a college degree?  Is it more than you will be paying in interest over the life of the loan?  Then it was probably worth it. Instead of paying down your loans, can you invest that money into something with a better rate of rate of return than the interest rate of the loan?  For example, why pay off your 3% student loan if you can invest in a stock with a 6% return?  The money goes to better use if it is invested.  (Note that most investments count as taxable income, so you have to factor taxes into your effective rate of return.) The caveat to this is that most investments have at least some risk associated with them.  (Stocks don't always go up.)  You have to weigh this when deciding to invest vs pay down debts.  Paying down the debt is more of a ""sure thing"". Another thing to consider: If you have a long-term loan (several years), paying extra principal on a loan early on can turn into a huge savings over the life of the loan, due to power of compound interest.  Extra payments on a mortgage or student loan can be a wise move.  Just make sure you are paying down the principal, not the interest!  (And check for early repayment penalties.)"

negative: It is pretty easy to setup a spreadsheet for calculating interest payments and remaining balance.  Do a quick search online.  You may want to put it in something like Google Docs, where brother can view the status, but only you can edit it.  When you get a payment, a portion goes to interest and another to principle.  The formulas will do the work for you. However, I feel that there is a bigger issue.  The math may seem like a good deal for the both of you, but I would be very hesitant to loan a family member money. What if he does not pay?  What if he is late with a payment and goes on a vacation himself?  What if his significant other resents the payment that you collect which precludes her from  buying a new TV, etc... People come to hate/resent big corporations that they have to make payments.  How much more so one that has a face....that comes over and eats?  While this loan is outstanding holidays may never be the same.   Is the loan a real need?  Are you in a position to give them the money?  You may want to consider the latter. Is there a reason he can't just borrow the money from the bank?

negative: Hard to give an answer without knowing more details (interest rates, remaining principle on loans, especially how soon the new roof is needed).  Maintaining the value in your home (unless you are planning to walk away from it or short-sell or something) is of paramount importance, and the cost of a leak should it happen can be substantial. If the roof is a few years out, and you have loans with interest rates about oh I'd say around 6%or more then I would pay off those loans and take the money you were paying there and start putting it into a fund to pay for the roof. I am also a huge fan of doing whatever you can to max out your 401K contributions.  Money put into a 401K early has a LOT more value than money put in later, and since you don't pay taxes on it, the cost out of your pocket is much lower (eg. at a 20% tax rate it costs you only $80 out of pocket to put $100 into your 401.. (look at that, you just made like 25% return on that $80) Paying off loans is pretty much equivalent to making a risk free return on the money equal to the interest rate on the loan.  But to REALLY make that work, what you need to do is in a virtual sense, keep making the loan payment just now pay it to yourself, putting that money into a savings account, or towards your 401K or whatever.  If you just torn around and start spending that money, then you are not really getting as much value to paying off the loan early.

negative: "Some pros and cons to renting vs buying: Some advantages of buying: When you rent, the money you pay is gone. When you buy, assuming you don't have the cash to buy outright but get a mortgage, some of the payment goes to interest, but you are building equity. Ultimately you pay off the mortgage and you can then live rent-free. When you buy, you can alter your home to your liking. You can paint in the colors you like, put in the carpet or flooring you like, heck, tear down walls and alter the floor plan (subject to building codes and safety consideration, of course). If you rent, you are usually sharply limited in what alterations you can make. In the U.S., mortgage interest is tax deductible. Rent is not. Property taxes are deductible from your federal income tax. So if you have, say, $1000 mortgage vs $1000 rent, the mortgage is actually cheaper. Advantages of renting: There are a lot of transaction costs involved in buying a house. You have to pay a realtor's commission, various legal fees, usually ""loan origination fees"" to the bank, etc. Plus the way mortgages are designed, your total payment is the same throughout the life of the loan. But for the first payment you owe interest on the total balance of the loan, while the last payment you only owe interest on a small amount. So early payments are mostly interest. This leads to the conventional advice that you should not buy unless you plan to live in the house for some reasonably long period of time, exact amount varying with whose giving the advice, but I think 3 to 5 years is common. One mitigating factor: Bear in mind that if you buy a house, and then after 2 years sell it, and you discover that the sale price minus purchase price minus closing costs ends up a net minus, say, $20,000, it's not entirely fair to say ""zounds! I lost $20,000 by buying"". If you had not bought this house, presumably you would have been renting. So the fair comparison is, mortgage payments plus losses on the resale compared to likely rental payments for the same period."

negative: As mentioned, the main advantage of a 15-year loan compared to a 30-year loan is that the 15-year loan should come at a discounted rate.  All things equal, the main advantage of the 30-year loan is that the payment is lower. A completely different argument from what you are hearing is that if you can get a low interest rate, you should get the longest loan possible.  It seem unlikely that interest rates are going to get much lower than they are and it's far more likely that they will get higher.  In 15 years, if interest rates are back up around 6% or more (where they were when I bought my first home) and you are 15 years into a 30 year mortgage, you'll being enjoying an interest rate that no one can get. You need to keep in mind that as the loan is paid off, you will earn exactly 0% on the principal you've paid.  If for some reason the value of the home drops, you lose that portion of the principal.  The only way you can get access to that capital is to sell the house.  You (generally) can't sell part of the house to send a kid to college.  You can take out another mortgage but it is going to be at the current going rate which is likely higher than current rates. Another thing to consider that over the course of 30 years, inflation is going to make a fixed payment cheaper over time.  Let's say you make $60K and you have a monthly payment of $1000 or 20% of your annual income.  In 15 years at a 1% annualized wage growth rate, it will be 17% of your income.  If you get a few raises or inflation jumps up, it will be a lot more than that.  For example, at a 2% annualized growth rate, it's only 15% of your income after 15 years. In places where long-term fixed rates are not available, shorter mortgages are common because of the risk of higher rates later.  It's also more common to pay them off early for the same reason.   Taking on a higher payment to pay off the loan early only really only helps you if you can get through the entire payment and 15 years is still a long way off.  Then if you lose your job then, you only have to worry about taxes and upkeep but that means you can still lose the home.  If you instead take the extra money and keep a rainy day fund, you'll have access to that money if you hit a rough patch.  If you put all of your extra cash in the house, you'll be forced to sell if you need that capital and it may not be at the best time.  You might not even be able to pay off the loan at the current market value. My father took out a 30 year loan and followed the advice of an older coworker to 'buy as much house as possible because inflation will pay for it'.  By the end of the loan, he was paying something like $250 a month and the house was worth upwards of $200K.  That is, his mortgage payment was less than the payment on a cheap car.  It was an insignificant cost compared to his income and he had been able to invest enough to retire in comfort.  Of course when he bought it, inflation was above 10% so it's bit different today but the same concepts still apply, just different numbers.  I personally would not take anything less than a 30 year loan at current rates unless I planned to retire in 15 years.

negative: "You'd have to check the terms of your contract. On most installment loans, I think, they calculate interest monthly, not daily. That is, if you make 3 payments of $96 over the course of the month instead of one payment of $288 at the end of the month (but before the due date), it makes absolutely zero difference to their interest calculation. They just total up your payments for the month. That's how my mortgage works and how some past loans I've had worked. All you'd accomplish is to cost yourself some time, postage if you're mailing payments, and waste the bank's time processing multiple payments. If the loan allows you to make pre-payments -- which I think most loans today do -- then what DOES work is to make an extra payment or an overpayment. If you have a few hundred extra dollars, make an extra payment. This reduces your principle and reduces the amount of interest you pay every month for the remainder of the loan. And if you're paying $1 less in interest, then that extra dollar goes against principle, which further reduces the amount you pay in interest the next month. This snowballs and can save you a lot in the long run. Better still, instead of paying $288 each month, pay, say, $300. Then every month you're nibbling away at the principle faster and faster. For example, I calculate that if you're paying $288 per month, you'll pay the loan off in 72 months and pay a total of $6062 in interest. Pay $300 per month and you'll pay it off in 67 months with a total of $6031 interest. Okay, not a huge deal. Pay $350 per month and you pay it off in 55 months with $5449 interest. (I just did quick calculations with a spreadsheet, not accurate to the penny, but close enough for comparison.) PS This is different from ""revolving credit"", like credit cards, where interest is calculated on the ""average daily balance"". With a credit card, making multiple payments would indeed reduce your interest. But not by much. If you pay $100 every 10 days instead of $300 at the end, then you're saving the interest on 20 days x $100 + 10 days x $100, so 12.5% = 0.03% per day, so 0.03% x ($2000+$1000) = 90 cents. If you're mailing your payments, the postage is 49 cents x 2 extra payments = 98 cents. You're losing 8 cents per month by doing this."

negative: I concur with the other answers about not mixing family and money: the one whose loans are paid off second will be taking the credit risk of the other not paying/being able to pay. There may also be tax implications. That said, if you do still want to do this, I think there's a fairly straightforward way to account for the payments. With your scenario, your brother should make you a personal loan at some interest rate inbetween 5% and 10%. That loan would be tracked independently of the actual student loans. Any money that your brother transfers to you to pay off your loans, add to that personal loan, and later on once your loans are paid off you start repaying the loan to him and he uses the proceeds for his own loans. The interest rate will determine how the benefit of paying off the 10% loans is shared: if the rate is set at 10% then your brother will get all the benefit, if 5% you will get all the benefit, and 7.5% would roughly share it out. This means that you can still manage your own student loans separately. Your brother can choose how little or much to commit to the snowball rather than his own loans (of course he should first make the minimum payments on his own loans). Anything he does loan you benefits you both if we ignore the credit and tax issues - he gets more than the 5% interest on his own loans, and you pay less than the 10% interest on your loans. You'll need to track the payments each way on this personal loan and apply interest to it every so often, I'd suggest monthly (beware that the monthly equivalent of 5% annual interest is not 5%/12, because of compounding).

negative: I'm a Finance major in Finland and here is how it would go here. As you loan money to the company, the company has no income, but gains an asset and a liability. When the company then uses the money to pay the bills it does have expenses that accumulate to the end of the accounting period where they have to be declared. These expenses are payed from the asset gained and has no effect to the liability. When the company then makes a profit it is taxable. How ever this taxable profit may be deducted from from a tax reserve accumulated over the last loss periods up to ten years. When the company then pays the loan back it is divided in principal and interest. The principal payment is a deduction in the company's liabilities and has no tax effect. The interest payment the again does have effect in taxes in the way of decreasing them. On your personal side giving loan has no effect. Getting the principal back has no effect. Getting interest for the loan is taxable income. When there are documents signifying the giving the loan and accounting it over the years, there should be no problem paying it back.

negative: Some have suggested you can put the money in the 401k then take a loan to pay off the student loan debt.  Some things to consider before doing that: Check your 401k plan first.  Some plans allow you to continue paying on a loan if you leave the company, some do not.  If you have to change jobs before you pay back the 401k loan, you may only have 90 days to completely pay the loan or the IRS will treat this as an early withdrawal, which means taxes and penalties.  If you don't have another job lined up, this is going to make things much worse since you will have lost your income and may owe even more to the government (depending on your state, it may be up to 50% of the remaining amount).  There are ways to work with some student debt loans to defer or adjust payments.  There is no such option with a 401k plan. This may change your taxes at the end of the year.  Most people can deduct student loan interest payments.  You cannot deduct interest paid to your 401k loan.  You are paying the interest to yourself though.   It may hurt your long term growth potential.  Currently loans on 401k loans are in the 4% range.  If you are able to make more than 4% inside of your 401k, you will be losing out on that growth since that money will only be earning the interest you pay back. It may limit flexibility for a few years.  When people fall on hard times, their 401k is their last resort.  Some plans have a limit on the number of loans you can have at one time.  You may need a loan or a withdrawal in the future.  Once you take the money out for a loan, you can't access it again.  See the first bullet about working with student loan vendors, they typically have ways to work with you under hard circumstances.  401k loans don't. Amortization schedule.  Many 401k loans can only be amortized for a max of 5 years, if you currently have 10 year loans, can you afford to pay the same debt back in 1/2 the time at a lower rate?  You will have to do the math. When considering debt other than student loans (such as credit cards), if you fall on hard times, you can always negotiate to reduce the amount you owe, or the debt can be discharged (with tax penalties of course).  They can't make you take money out.  Once it is out, it is fair game. Just to clarify, the above isn't saying you shouldn't do it under any circumstances, it is a few things you need to evaluate before making that choice.  The 401k is supposed to be used to help secure your financial future when you can't work.  The numbers may work out in the short term, but do they still work out in the long term?  Most credit cards require minimum payments high enough to pay back in 7-10 years, so does shortening that to 5 (or less) make up for the (probably early) years of compounding interest for your retirement?  I think others have addressed some of this so I won't do the math. I can tell you that I have a 401k loan, and when things got iffy at my job for, it was a very bad feeling to have that over my head because, unlike other debts, there isn't much you can do about it.

negative: "It really depends on the answers to two questions: 1) How tight is your budget going to be if you have to make that $530 payment every month?  Obviously, you'd still be better off than you are now, since that's still $30 cheaper. But, if you're living essentially paycheck to paycheck, then the extra flexibility of the $400/month option can make the difference if something unforeseen happens.  2) How disciplined (financially) have you proven you can be? The ""I'll make extra payments every month"" sounds real nice, but many people end up not doing it. I should know, I'm one of them. I'm still paying on my student loans because of it. If you know (by having done it before), that you can make that extra $130 go out each and every month and not talk yourself into using it on all sorts of ""more important needs"", then hey, go for it. Financial flexibility is a great thing, and having that monthly nut (all your minimum living expenses combined) as low as possible contributes greatly to that flexibility.  Update: Another thing to consider Another thing to consider is what they do with your extra payment. Will they apply it to the principal, or will they treat it as a prepayment? If they apply it to principal, it'll be just like if you had that shorter term. Your principal goes down additionally by that extra amount, and the next month, you owe another $400.  On the other hand, if they treat it as a prepayment, then that extra $130 will be applied to the next month's bill. Principal stays the same, and the next month you'll be billed $270.   There are two practical differences for you:  1) With prepayment, you'll pay slightly more interest over that 60 months paying it off. Because it's not amortized into the loan, the principal balance doesn't go down faster while the loan exists. And since interest is calculated on the remaining principal balance, end result is more interest than you otherwise would have paid. That sucks, but:  2) with the prepayment, consider that at the end of year 2, you'd have over 7 months of payments prepaid. So, if some emergency does come up, you don't have to send them any money at all for 7 months. There's that flexibility again. :-)  Honestly, while this is something you should find out about the loan, it's really still a wash. I haven't done the math, but with the interest rate, amount of the loan and time frame, I think the extra interest would be pretty minor."

negative: "I've heard that the bank may agree to a ""one time adjustment"" to lower the payments on Mortgage #2 because of paying a very large payment. Is this something that really happens? It's to the banks advantage to reduce the payments in that situation.  If they were willing to loan you money previously, they should still be willing.  If they keep the payments the same, then you'll pay off the loan faster.  Just playing with a spreadsheet, paying off a third of the mortgage amount would eliminate the back half of the payments or reduces payments by around two fifths (leaving off any escrow or insurance).   If you can afford the payments, I'd lean towards leaving them at the current level and paying off the loan early.  But you know your circumstances better than we do.   If you are underfunded elsewhere, shore things up.  Fully fund your 401k and IRA.  Fill out your emergency fund.  Buy that new appliance that you don't quite need yet but will soon.  If you are paying PMI, you should reduce the principal down to the point where you no longer have to do so.  That's usually more than 20% equity (or less than an 80% loan).   There is an argument for investing the remainder in securities (stocks and bonds).  If you itemize, you can deduct the interest on your mortgage.  And then you can deduct other things, like local and state taxes.  If you're getting a higher return from securities than you'd pay on the mortgage, it can be a good investment.  Five or ten years from now, when your interest drops closer to the itemization threshold, you can cash out and pay off more of the mortgage than you could now.   The problem is that this might not be the best time for that.  The Buffett Indicator is currently higher than it was before the 2007-9 market crash.  That suggests that stocks aren't the best place for a medium term investment right now.   I'd pay down the mortgage.  You know the return on that.  No matter what happens with the market, it will save you on interest.  I'd keep the payments where they are now unless they are straining your budget unduly.  Pay off your thirty year mortgage in fifteen years."

negative: "There are normally three key factors that define different kinds of loans, these factors affect the risk that the lender takes on and so the interest rate. The interest rate on any loan is linked to market interest rates; the lender shouldn't be able to receive a higher rate of interest for lending the money at no risk, and the level of risk that the lender believes the borrower to have. The three features of a particular loan are: These reduce the risk of complete or total non-payment (default) of the principal or any missed interest payments. Taken in order: Amortising Here some of the monthly payment pays a proportion of the underlying principal of the loan. This reduces the amount outstanding and so reduces the capacity for default on the full principal as part of the principal has already been paid. Security In a secured loan there is an asset such as a car, house, boat, gold, shares etc. that has a value on resale that is held against the loan. The lender may repossess the security if the borrower defaults and recover their money that way. This also acts as a ""stick"" using the loss of property to convince the borrower that it is better to keep paying the interest. The future value of the security will be taken into account when deciding how much this reduces the interest rate. Guarantor A guarantor to a loan guarantees that the borrower will repay the loan and interest in full and, if the borrower does not fulfil that obligation, the lender is able to seek legal redress from the guarantor for the borrower's debts. Each of these reduce the risk of the loan as detailed and so reduce the interest rate. The interest rate, then, is made up of three parts; the market interest rate (m) plus the interest rate premium for the borrower's own credit worthiness (c) minus the value of the features of the loan that help to reduce risk (l). The interest rate of the loan (r) is categorised as: r = m + c - l. Credit ratings themselves are an inexact science and even when two lenders are looking at the same credit score for the same person they will give a different interest rate premium. This is mostly for business reasons, and the shape of their loan book, that are too tedious to go through here. All in all the different types of loan give flexibility at the cost of a different interest rate. If you don't want the chance of your car being repossessed you don't take a secured loan, if you have a family member who can help and doesn't mind taking on your risk take a guaranteed loan."

negative: I'm a woman in her early 30s who has a bachelors degree and a job.  I rent an apartment, own my car and spend within my means because that's what I was taught.  When my sister and now ex-bro-in-law decided to buy a house in the middle of the bubble, despite having no saved money and a child on the way I shook my head at them.  They responded with, 'Real estate only goes up, it's an investment'...I laughed and told them they were fucking stupid to pay $350,000 for an older 2 bedroom house in Phoenix, AZ that was severely overpriced but they said, 'well it's 0 down and the interest rate is like NOTHING!'  Cut to now, the same house is worth MAYBE $110,000 but ya know that great interest rate they got at the beginning wasn't so great when they had to refi so they didn't want to pay their payments for a $110,000 house with a $350,000 loan so they stopped paying their mortgage.  Nothing really happened except some letters were sent and was told that the only way to get a better interest rate was to HAVE to miss a certain number of payments (maybe 6 months) in order to qualify for the loan the Obama admin had created.  At some point that year she decided to get a boob job, tummy tuck and liposuction and her and her husband felt the need to purchase all kinds of new things.  She eventually did qualify for that government help and was totally forgiven for the 6-8 months of payments they missed... so CLEARLY purposely missing payments would have been considered 'very smart' by those same analysts who called what American Airlines did as 'very smart.    So I sit here, with my morals in tact and they sit there like a million other people in this country having their cake and eating it too so I have to wonder WHAT THE FUCK? Was I the stupid one for not following the rest of the asshole idiot sheep and screwing all the people with what I would have thought were basic morals?  It appears so.

negative: There is no interest outstanding, per se.  There is only principal outstanding.  Initially, principal outstanding is simply your initial loan amount. The first two sections discuss the math needed - just some arithmetic. The interest that you owe is typically calculated on a monthly basis.  The interested owed formula is simply (p*I)/12, where p is the principal outstanding, I is your annual interest, and you're dividing by 12 to turn annual to monthly. With a monthly payment, take out interest owed.  What you have left gets applied into lowering your principal outstanding.  If your actual monthly payment is less than the interest owed, then you have negative amortization where your principal outstanding goes up instead of down. Regardless of how the monthly payment comes about (eg prepay, underpay, no payment), you just apply these two calculations above and you're set.  The sections below will discuss these cases in differing payments in detail. For a standard 30 year fixed rate loan, the monthly payment is calculated to pay-off the entire loan in 30 years.  If you pay exactly this amount every month, your loan will be paid off, including the principal, in 30 years.  The breakdown of the initial payment will be almost all interest, as you have noticed.  Of course, there is a little bit of principal in that payment or your principal outstanding would not decrease and you would never pay off the loan. If you pay any amount less than the monthly payment, you extend the duration of your loan to longer than 30 years.  How much less than the monthly payment will determine how much longer you extend your loan.  If it's a little less, you may extend your loan to 40 years.  It's possible to extend the loan to any duration you like by paying less.  Mathematically, this makes sense, but legally, the loan department will say you're in breach of your contract. Let's pay a little less and see what happens.  If you pay exactly the interest owed = (p*I)/12, you would have an infinite duration loan where your principal outstanding would always be the same as your initial principal or the initial amount of your loan.   If you pay less than the interest owed, you will actually owe more every month.  In other words, your principal outstanding will increase every month!!!  This is called negative amortization.  Of course, this includes the case where you make zero payment.  You will owe more money every month. Of course, for most loans, you cannot pay less than the required monthly payments.  If you do, you are in default of the loan terms. If you pay more than the required monthly payment, you shorten the duration of your loan.  Your principal outstanding will be less by the amount that you overpaid the required monthly payment by.  For example, if your required monthly payment is $200 and you paid $300, $100 will go into reducing your principal outstanding (in addition to the bit in the $200 used to pay down your principal outstanding).  Of course, if you hit the lottery and overpay by the entire principal outstanding amount, then you will have paid off the entire loan in one shot! When you get to non-standard contracts, a loan can be structured to have any kind of required monthly payments.  They don't have to be fixed.   For example, there are Balloon Loans where you have small monthly payments in the beginning and large monthly payments in the last year.   Is the math any different?  Not really - you still apply the one important formula, interest owed = (p*I)/12, on a monthly basis.  Then you break down the amount you paid for the month into the interest owed you just calculated and principal.  You apply that principal amount to lowering your principal outstanding for the next month. Supposing that what you have posted is accurate, the most likely scenario is that you have a structured 5 year car loan where your monthly payments are smaller than the required fixed monthly payment for a 5 year loan, so even after 2 years, you owe as much or more than you did in the beginning!  That means you have some large balloon payments towards the end of your loan.  All of this is just part of the contract and has nothing to do with your prepay. Maybe I'm incorrect in my thinking, but I have a question about   prepaying a loan. When you take out a mortgage on a home or a car   loan, it is my understanding that for the first years of payment you   are paying mostly interest. Correct. So, let's take a mortgage loan that allows prepayment without penalty.   If I have a 30 year mortgage and I have paid it for 15 years, by the   16th year almost all the interest on the 30 year loan has been paid to   the bank and I'm only paying primarily principle for the remainder of   the loan. Incorrect.  It seems counter-intuitive, but even in year 16, about 53% of your monthly payment still goes to interest!!!  It is hard to see this unless you try to do the calculations yourself in a spreadsheet. If suddenly I come into a large sum of money and decide I want to pay   off the mortgage in the 16th year, but the bank has already received   all the interest computed for 30 years, shouldn't the bank recompute   the interest for 16 years and then recalculate what's actually owed in   effect on a 16 year loan not a 30 year loan? It is my understanding   that the bank doesn't do this. What they do is just tell you the   balance owed under the 30 year agreement and that's your payoff   amount. Your last sentence is correct.  The payoff amount is simply the principal outstanding plus any interest from (p*I)/12 that you owe.  In your example of trying to payoff the rest of your 30 year loan in year 16, you will owe around 68% of your original loan amount. That seems unfair. Shouldn't the loan be recalculated as a 16 year   loan, which it actually has become? In fact, you do have the equivalent of a 15 year loan (30-15=15) at about 68% of your initial loan amount.  If you refinanced, that's exactly what you would see.  In other words, for a 30y loan at 5% for $10,000, you have monthly payments of $53.68, which is exactly the same as a 15y loan at 5% for $6,788.39 (your principal outstanding after 15 years of payments), which would also have monthly payments of $53.68. A few years ago I had a 5 year car   loan. I wanted to prepay it after 2 years and I asked this question to   the lender. I expected a reduction in the interest attached to the car   loan since it didn't go the full 5 years. They basically told me I was   crazy and the balance owed was the full amount of the 5 year car loan.   I didn't prepay it because of this. That is the wrong reason for not prepaying.  I suspect you have misunderstood the terms of the loan - look at the Variable Monthly Payments section above for a discussion.   The best thing to do with all loans is to read the terms carefully and do the calculations yourself in a spreadsheet.  If you are able to get the cashflows spelled out in the contract, then you have understood the loan.

negative: Think about how loans work for you personally.  When you charge a $50 dinner for two to your Visa card, you did not earn $50 in income.  You did not pay income tax on that $50.  The money you use to pay back that $50 at the end of the month is not tax deductible.    Interest on a loan is a business expense.    Repayment of principal is not a business expense, just as receiving the loan in the first place is not business income.   Effectively this means the LLC repays the loan with after-tax dollars.  Just like you do with your Visa card.  When I do corporate accounting, payment of loan interest shows up on the expense side of the Profit/Loss statement, and it makes the Balance Sheet net assets go down.   However payment of loan principal is effectively null.  It doesn't appear on the Profit/Loss at all -- and it's a wash on the Balance Sheet, as both Assets and Liabilities fall by the same amount.