If a borrower pays more than is currently due, extra toward settings determine where the extra portion of their payment goes-interest, principal, or other balance components. This article will explain how to access and use extra toward settings.

Getting started

To begin, log a payment by navigating to Servicing > Payments inside an individual loan account. For more information on how to log a payment, visit our Manual payments article. Extra towards options are found in the ‘Advanced Settings’ section when logging a payment. 

The extra towards settings are determined by the interest application on the loan, which will either be Between Transactions or Between Periods. This was chosen when setting up the account. To access this setting, navigate to Account Setup > Setup Terms > Advanced Configuration. 

Between Transactions

If interest is accruing between transactions, the extra towards options include principal, principal only, next forecasted, one period forecasted, and two periods forecasted.

• Principal: Apply the extra amount towards the principal balance on the loan. For example, if $80.00 is due on the loan and the borrower pays $200.00, selecting 'principal' will mean that after the payment applies, -$120.00 will show due on the loan, reducing the future amounts due by $120.00. Using this option allows the borrower to pay ahead on the loan, meaning the following payments on the loan will be reduced by the extra principal paid. Future payments will not show as due until the due amount exceeds the extra principal amount paid. So in our example, the extra $120 will cover the next $80 amount due and $40 of the amount due after that. If the customer was on a monthly payment frequency, they would not show due for another payment for 2 months and then only $40 would be due.
• Principal only: Apply the extra amount towards the principal balance on the loan, lowering the principal balance by the extra amount. However, this will not affect/pay down the next payment unless the next payment is the final payment.  For example, if $80.00 is due on the loan and the borrower pays $200.00, selecting ‘principal only’ will mean that $80.00 will cover the amount due bringing the account current and $120.00 will be posted as a ‘principal only’ payment and the next scheduled payment will still be due for the full amount.
• Next forecasted (formerly ‘Classic’): Apply the extra amount according to the following sequence; first, to any amount due on the account; second, to the next scheduled due payment that has not been covered; and finally, any remaining amount will be applied as a ‘principal only’ payment (doesn't affect the amount of future payments until the end of the loan). For example, if $80.00 is due on the loan and the borrower pays $200.00, selecting 'Next Forecasted' will mean that $80.00 will cover the amount due, bringing the account current. $80 would cover the next scheduled payment and $40.00 would be posted as a ‘principal only’ payment. The result would be that the customer would not show due for their next payment, but would be required to pay the full amount of the payment after that.

• One period forecasted (formerly ‘Classic v1’): Apply the extra amount following the same sequence as ‘Next Forecasted’, but do not cover any scheduled payments beyond the next scheduled payment. If the customer makes a payment larger than what is due and the next scheduled payment is already covered, the payment becomes a ‘principal-only payment’. This limits the ability of a customer to only pay one payment ahead in all circumstances.
• Two periods forecasted (formerly ‘Classic v2’): Apply the extra amount like ‘One Period Forecasted’, with the payment applying to the current amount due, then covering the next two scheduled payments and then principal only. ‘Two Periods Forecasted’ does not cover scheduled payments beyond the next two scheduled. If the customer makes a payment larger than what is due and the next two scheduled payments are already covered, the extra towards all becomes a ‘principal only’ payment. This limits the ability of a customer to only pay two payments ahead in all circumstances.

Between Periods

If you set the interest to accrue between periods, the extra towards options are principal only and next payment.

• Principal only will apply the extra amount directly to the principal. This will not affect the past-due calculation or the next payment amount on the loan. For example, if the “extra” amount is $10 and the next scheduled payment is $200, the next scheduled payment will still be $200.
• Next payment will apply the “extra” amount to the next payment. The application date of the “extra” amount will be the same as the next scheduled payment date. For example, if the “extra” amount is $10 and the next payment comes due on July 1, $10 will apply to the loan on July 1.

How extra towards settings convert

If the interest application type is changed on a loan after payments are already applied, their extra towards settings may change. The following explains how their settings will convert between interest application types. 

This table shows what values you'll have when switching from Between Transactions to Between Periods.

This next table shows what values you'll have when switching from ‘Between Periods’ to ‘Between Transactions’.

If you convert a loan from Between Transactions to Between Periods, but then switch back to Between Transactions again, each payment extra towards value will be converted to its original value. The same is true for the reverse situation.