What is principal curtailment?

Principal curtailment refers to a voluntary payment made by a borrower that is applied directly to the principal balance of a loan, such as a mortgage or car loan. This can help reduce the overall amount of interest paid over the life of the loan and shorten the repayment period.

Making principal curtailments can be a smart financial strategy for borrowers who want to pay off their loan sooner and save money on interest payments. By reducing the principal balance, borrowers can also lower their monthly payments or potentially qualify for a loan modification if they are struggling to make their payments.

It's important to check with the lender about any specific rules or restrictions regarding principal curtailments, as some loans may have prepayment penalties or limits on the amount that can be paid towards the principal. It's also worth considering whether making a principal curtailment is the best use of funds, as there may be other financial priorities that need to be addressed first.