Accelerated Payments

DEFINITION of 'Accelerated Payments'

A term associated with making additional unscheduled payments on a loan at predetermined, or random intervals. Making additional unscheduled payments reduces the principal balance of the loan, meaning that more principal and less interest is paid off in subsequent payments. Making accelerated payments will lead to the early pay-off of a loan.

BREAKING DOWN 'Accelerated Payments'

Most loans have an amortization schedule that defines how much principal and interest will be paid with each scheduled payment, so that the loan will be paid-off at the end of an established term.

Also, the amount of interest paid with each payment is a function of the remaining principal balance of the loan at that time. The higher the rate of interest on a loan, the more beneficial it can be to make accelerated payments. The faster the borrower applies accelerated payments toward the principal balance of a loan, the more interest that is saved.