DEFINITION of Interest Due
For a given loan, interest due represents the dollar amount required to pay the interest cost of the loan for the payment period. Most loan payments are structured so that each payment covers the interest charged on the loan for the period, the interest due, as well as reduces the principal balance of the loan. Interest due is a component of the total loan payment. Each month, the interest due will decline as the principal balance becomes smaller and smaller. They are often paid using ACH transfers.
BREAKING DOWN Interest Due
For example, assume a borrower has a $2,000 loan that charges a 5% interest rate and has a required payment of $94.15 per month. In the first month of the loan repayment, the interest due is $8.33, which means that month's payment toward the principal of $85.82 ($94.15-$8.33) will leave an ending balance of $1,914.18. Next month, interest due will be $7.98, a smaller amount because interest due is now calculated on a smaller principal balance.