Accelerated Payments

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Accelerated Option

    This term refers to an option in an insurance contract, usually ...
  2. Creditor

    An entity (person or institution) that extends credit by giving ...
  3. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  4. Non-Recourse Debt

    A type of loan that is secured by collateral, which is usually ...
  5. Loan

    The act of giving money, property or other material goods to ...
  6. Loan Stock

    Common or preferred stock shares that are used as collateral ...
RELATED FAQS
  1. When capitalizing interest, will interest accrue while you are in a deferment?

    When capitalizing interest, interest accrues while a person is in a deferment of his loan. In the event of a deferment, the ... Read Full Answer >>
  2. Why is more interest paid over the life of a loan when it is capitalized?

    More interest is paid over the life of a loan when that interest is capitalized because the capitalized interest is added ... Read Full Answer >>
  3. What are some examples of simple interest loans?

    Two good examples of simple interest loans are simple interest car loans and the interest owed on lines of credit such as ... Read Full Answer >>
  4. How can I use the correlation coefficient to predict returns in the stock market?

    Simple interest is most commonly seen in short-term loans, such as those from payday lenders or pawn shops. You might see ... Read Full Answer >>
  5. What are some examples of debt instruments?

    Individuals, businesses and governments use common types of debt instruments, such as loans, bonds and debentures, to raise ... Read Full Answer >>
  6. What is the difference between secured and unsecured debt?

    The difference between secured and unsecured debt is the presence or absence of collateral backing. Secured Debt For a debt ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  2. Home & Auto

    When (And When Not) To Refinance Your Mortgage

    There are both good and bad reasons to refinance. Learn more about both here.
  3. Retirement

    Student Loan Debt: Is Consolidation The Answer?

    Consolidating your student loans offers convenience, but there are drawbacks.
  4. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  5. Credit & Loans

    Calculating Interest Expense

    Interest expense is the cost of borrowing money.
  6. Credit & Loans

    Explaining Credit Ratings

    A credit rating is a third-party assessment about the creditworthiness of an individual or entity.
  7. Economics

    Explaining Tenor

    Tenor is the length of time to maturity of a debt, contract or loan.
  8. Economics

    How Does a Lien Work?

    A lien gives a creditor the legal right to seize and sell property, then use the proceeds to pay off a borrower’s debt.
  9. Credit & Loans

    What's a Hire Purchase?

    Hire purchase is a term used in Great Britain to describe an installment plan payment arrangement.
  10. Credit & Loans

    How Risky Are Long-Term Car Loans?

    A look under the hood of long-term car loans.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!