What Does Do Not Advance Due Date Mean?
Clarify "do not advance due date" and its impact on extra payments, ensuring consistent financial scheduling and effective principal reduction.
“Do not advance due date” refers to an instruction to a lender or servicer on how to apply an extra loan payment. This option ensures any additional funds beyond your regular installment are directed towards reducing your loan’s principal balance. It prevents your next scheduled payment due date from moving further into the future, maintaining your original payment schedule.
Understanding Due Date Advancement
Many loan systems automatically advance your next payment due date if you make an extra payment or overpay your regular installment. For instance, if your monthly payment is $300 and you pay $600, the system might consider the extra $300 as next month’s payment, effectively pushing your next due date forward by a month.
This automatic due date advancement can occur with various types of loans, including student loans, mortgages, and auto loans, depending on the lender’s default settings. While this might seem convenient by providing a temporary break from payments, it does not always align with a borrower’s goal of reducing the total cost of their loan.
When a due date is advanced, extra funds primarily cover both principal and interest components of the future payment, rather than solely targeting the principal. This means overall interest accrual on the loan may not decrease as rapidly as it would if the extra payment were applied directly to the principal.
Impact of Not Advancing the Due Date
Selecting the “do not advance due date” option ensures that any extra money you pay is applied directly to the loan’s principal balance, after any accrued interest for the current period is satisfied. This action keeps your regular payment schedule intact, meaning your next payment will still be due on its original date. The primary benefit of this approach is accelerating the reduction of your outstanding principal.
By reducing the principal balance faster, less interest accrues over the remaining life of the loan, leading to significant savings on the total interest paid. For example, an additional $100 payment each month on a typical 30-year, $200,000 mortgage at 4% interest could shorten the loan term by over four and a half years and save more than $26,500 in interest. This strategy allows borrowers to pay off their debt more quickly and efficiently.
Maintaining a consistent payment schedule also provides predictability for your personal finances. You continue to make your regular monthly payments as planned, but a larger portion of each future payment will go towards reducing the principal as the loan amortizes. This approach helps those aiming to aggressively pay down debt and minimize long-term borrowing costs.
Where This Option Appears
The “do not advance due date” option is found in financial products with amortization schedules, where payments include both principal and interest. This includes various types of loans such as mortgages, auto loans, personal loans, and student loans. Lenders offer this choice to provide borrowers with control over how their extra payments are allocated.
When making an extra payment, you might encounter this option online, within your lender’s payment portal, or through specific instructions for mailed payments. It often appears as a checkbox or a clear designation to apply funds directly to principal. This feature empowers borrowers to manage their debt reduction and achieve financial goals.