In what order do the following get paid: Past Due, Interest, Principal?

In what order do the following get paid: Past Due, Interest, Principal?

• A. Past Due, Interest, Principal
• B. Interest, Principal, Past Due
• C. Principal, Interest, Past Due
• D. Past Due, Principal, Interest

Answer: (A)

When a loan is behind, payments are applied in a prioritized way to bring the loan current. The first portion goes to any past-due amounts and related charges so those arrearages are cleared. Once those are satisfied, any remaining funds are applied to the interest that has accrued. Only after both past-due amounts and interest are covered does the remaining amount reduce the principal. This sequence—Past Due first, then Interest, then Principal—ensures delinquency is addressed before reducing the loan balance.

When a loan is behind, payments are applied in a prioritized way to bring the loan current. The first portion goes to any past-due amounts and related charges so those arrearages are cleared. Once those are satisfied, any remaining funds are applied to the interest that has accrued. Only after both past-due amounts and interest are covered does the remaining amount reduce the principal. This sequence—Past Due first, then Interest, then Principal—ensures delinquency is addressed before reducing the loan balance.