How are my payments applied on my payoff loan?

Payments first fulfill any outstanding fees (if applicable), followed by the daily interest accrued on your loan since your last payment, and finally, to reducing your principal balance.

This method is commonly used for all fixed-rate, amortized loans, including mortgages and auto loans. Essentially, each payment reduces the amount of interest you owe and then goes toward lowering the balance of the loan itself.

Over time, as the principal balance decreases, a larger portion of your payment goes toward reducing the principal, helping you pay off the loan faster.