I am making payments but I don’t feel like my balance is going down

Paying at the very beginning of a loan can be quite frustrating.  For many it feels as though all their money is going to interest and none is going to principal.

One of these people are my brother.  We are sitting at dinner one night at my parents and he says to me “Why is my entire payment going towards interest?”  The fact that he has been in repayment for a while and always pays more than his monthly due it confused me.  So I had him access his online account.  Turns out it only looked like all.  About 75% of the payment was going to interest with the rest reducing the principal.  To him (and many others) it just feels like a massive climb.

As a reminder, here is how payments are applied for most payments.   Any interest that accrues is first satisfied, after this interest is satisfied the remainder goes to principal and the interest is recalculated.  As a result the following month since less daily interest is accruing the same payment will have more going to principal and less to interest.  This will again lower the daily interest.  This formula  is why loans at the end go almost entirely towards interest while at the beginning they feel as though it only goes to principal.

Is it possible for an entire payment to go to interest?  Of course.  If you have enough interest built up for example while in school and make a payment this is likely to happen.  But usually something does goes towards principal it just feels like not as much as you’d like at the beginning.