By Melina Duffett • August 01, 2022
Looking at your loan amount, you may have questions about your loan balance. Why isn’t my principal balance decreasing more quickly? Can paying late increase your total loan balance? Why do I owe more than I borrowed? Why isn’t more of my payment going to the outstanding principal balance?
Finding the answer for your situation depends on your type of loan, how the interest is calculated and how timely or consistently you make your payments. That helps demystify what part of your payment goes to interest versus principal and also how to keep your balance from getting higher because of late payments. Let’s take a closer look.
There are two key ways interest is calculated that will affect what your total loan balance looks like month to month: precomputed loans and daily simple interest loans (DSI). When you better understand these, you’re able to answer other questions like why your personal loan balance is increasing.
Understanding how interest works on precomputed personal loans
A precomputed loan calculates how much interest you'll pay over the life of a loan based on a schedule of regular payments, often referred to as loan amortization, and adds that amount to your principal balance. Essentially, the amount you owe will be higher than the amount you borrow because interest is calculated at the beginning.
You’ll likely need to make several payments before the total balance owed is less than the amount borrowed because your regularly scheduled payments (loan amortization) are considered “installments” that gradually pay off the balance and interest together. Keep in mind that paying late can result in fees, which is what increases your total loan balance.
Learn more and see how interest is calculated with example numbers in our recent article, Understanding How a Precomputed Loan Works.
Understanding how interest works on daily simple interest personal loans
Daily simple interest loans calculate interest on the unpaid principal balance as payments are made. If your payment is late, a larger portion goes to interest. If you become severely past due, it may take several payments to cover the extra interest with little going toward the balance. That’s the answer for anyone asking, “Why is my personal loan balance increasing?” or “Why is my payoff amount going up?”
Learn more and see how daily simple interest is calculated with example numbers in our recent article, How Daily Simple Interest Works.
How to keep loan balance from increasing
Since interest accrues daily, it is beneficial to pay off interest as quickly as possible to stay on top of payments and reduce the chance of a loan increasing due to interest. The best way to stay on top of your debt is to always make your payments on time and in full. That will help you pay off your debt more quickly and save a lot of money in interest charges.
Try these tips to get a handle on your loan debt:
Make consistent payments
Making payments on time and in full keeps the balance of your loan on the original schedule. If you get behind on your loan payments, make all your past due payments as soon as possible.Pay more than the minimum
Paying a little more than the minimum due can make debt disappear more quickly. By increasing how much you’re paying, you will owe less in total interest charges in the future.Make more frequent or larger payments
Talk to your lender about whether it’s possible for you to make more than one payment a month or pay more than your scheduled payment. When you have extra money in your budget, make two payments rather than one or add extra money to your regular payment.Revise your budget to make paying off loans easier
Cutting expenses can be tough, but the extra money might help you pay off your loans faster. Whether it’s making home-cooked meals instead of going out, having a movie night at home or cutting subscriptions that you no longer use, you can budget and save money that can be put towards your loan payment.Consider your savings
We know it’s important to save money for emergencies and unexpected expenses. However, if you have any extra money in your emergency fund, you may want to consider using some of it to pay off debt, particularly if the interest rates are high, to avoid paying more than you have to.
We’re here to help
Managing your loans does not have to be confusing or intimidating. If you are a current OneMain customer and have questions or concerns about your loan, we’re here to help. Give us a call at 800-290-7002.
This article has been updated from a previous posting on July 14, 2016. Matt Diehl contributed.
The information in this article is provided for general education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. It is not intended to be and does not constitute financial, legal, tax or any other advice specific to you the user or anyone else. The companies and individuals (other than OneMain Financial’s sponsored partners) referred to in this message are not sponsors of, do not endorse, and are not otherwise affiliated with OneMain Financial.
