What happens when someone pays extra

Each repayment is applied in a fixed order. The order matters: the total owed is the same whichever way you slice it, but where the money lands decides whether the loan reads as ahead of schedule and how much interest is charged next month.

1. Interest due on the current installment is covered first.
2. Then the principal portion of that installment.
3. Anything left over comes off principal ahead of schedule — not toward next month's interest.
4. If the principal is fully settled and money still remains, it settles charges next, then any accrued interest from missed due dates.
5. Anything beyond every obligation is reported as a credit — money owed back to the borrower. It is never rounded away to make the balance read zero.

Once the balance falls below what the original plan expected at that point, LoanCompass shows an adjusted schedule alongside the original, plus an estimate of the interest saved and the months saved. Which of the two moves — the payment size or the number of payments — depends on the plan:

• Monthly amortization — the payment stays the same size and the loan finishes early, with less total interest.
• Diminishing balance and fixed principal + interest — future installments get smaller, because the interest component is computed on a lower balance.
• Interest-only balloon — the monthly interest payment drops and the final balloon shrinks.
• Add-on / flat rate — the scheduled amounts do not change, because the interest was fixed at the start. Paying early shortens the loan but saves nothing in interest.
• Bullet — there is no monthly schedule to adjust; extra payments reduce the lump sum due at maturity.

Enter the actual amount that changed hands. If it exceeds the next scheduled payment, LoanCompass asks you to confirm before recording — an overpayment is usually deliberate, but a mistyped figure looks identical to one until it is in the ledger.

A borrower with an account can propose the payment instead, from their own view of the loan. It arrives in your inbox as a proposal and changes nothing until you accept it; accepting writes the repayment and every balance on screen updates.

Pay less than the installment and the shortfall stays on principal, so the loan reads behind and next month's interest is charged on a larger balance than the plan assumed. Nothing is penalised automatically — no fee appears on its own. If you want one, add it as a charge with a reason attached, so the borrower can see what it was for.

To close a loan outright, record a repayment for the full outstanding amount — principal, charges and accrued interest together, which is the figure shown as outstanding on the loan. Once every obligation is settled the loan is marked paid off automatically. You do not need to close it by hand, and it will not re-open on its own afterwards.