What is the difference between regular monthly payments and Principal Only Payments ?

Answer 1

Sometimes numbers present a better understanding:

Principal is the amount of money you get: 10,000
Interest is the amount you pay extra: 1000
total of loan: 11,000

If your payment including principal and interest per month is
100.00
it will be applied as: 90.00 principal
10.00 interest
your principal balance is then: 9,910.00
your interest balance is then: 90.00
If you only pay the interest: 100.00
principal balance is: 10,000
Here's the problem with the interest only payment: (follow closely)
Interest accrues (builds upon) the principal balance. In other words, if the principal balance is high then the interest is going to high. If the principal balance is low then the interest is going to be lower.
When you pay interest only, you never touch, (or reduce the principal amounts) which means that the interest rate of say 10% will always be calculated based upon the principal balance of 10,000. In today's markets, real estate specifically, 99% of interest only loans are called adjustable rate mortgages. The interest rates go up or down. (Recently, up) When that happens it is usually done 1x a year, sometimes 1x every 2-3 years, your interest only payments increase because your principal never decreases. Interest only payment are always going to be less on a monthly payment basis, but the amount you owe never really goes down, it just sits there until you convert it to a fixed rate where the monthly payments are higher, but every month a portion of your payment reduces the principal balance. What this does is reduce the amount of the interest portion with each payment.
This is called in the easiest example to explain, SIMPLE INTEREST.

There are several different ways to calculate interest.
The accrual method
The actuarial method
The compound interest method.
All three of these are quite a bit more complex to explain in layperson terms, but suffice it to say, that the 3 noted are more costly when it comes to paying the interest on a loan.
In reality, there are not too many loans anymore that are NOT simple interest loans, but they are out there, and those with lower credit scores are usually the ones who have to agree to them if they want the loan.

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Answer 2

Regular monthly payments generally include Interest in addition to the Principal.
I have never heard of making monthly on the Principal only, unless it is an interest free loan. On the other hand, sometimes lenders will allow a monthly payment of INTEREST only if the borrower is having financial difficulties.;

Answer 3

A monthly payment is a combination of Interest and Principal that you're paying on. A Principal Only payment is simply that, you aren't paying on the interest.

Answer 4

Regular monthly payments are made up of, part principal & part interest. If you have a Principal Only payments loan, then it sounds to me like you have an interest free loan?

Answer 5

Regular monthly payments include interest and principal, calculated using a "regular" amortization schedule.

Principal-only payments are either in addition to the "regular" payments and apply only to principal, or they are payments of principal only (interest accrues).

Answer 6

When you finance something you accure intrest on the principal balance. Principle is the cost of what you purchased.When you make a pymnt towards principle only, it's paying just towards what you bought, not the intrest. As a result of the principal going down, so will your intrest.