Additional principal payment
Additional principal payment refers to the payment that exceeds the scheduled principal amount due. This payment is done by the borrower for reducing the outstanding balance in a loan and to save the interest on the loan. This kind of payment is done to settle the loan as soon as possible.
The additional extra payments are given for the outstanding loan for saving on the interest rates. But the approach towards additional principal payment and pre-payment will be different for different lenders.
A clause will be included in the loan papers in relation to the additional payment at the time of the negotiation of loan. The advantage of this payment is it will reduce the principal amount of the present and the future of the borrower. In other words, it is a payment by the borrower for reducing the principal and repay the loan as soon as possible. It is beneficial for both lender and borrower.