It depends on the loan. Sometimes, when a bank receives payment for money that has been borrowed, they will always take the interest portion of the payment out first. Example: If Mike had a 5 year car loan for $10,000 and the interest rate was 10%. Mike would pay $2.74 per day in interest for the money borrowed. If Mike made his scheduled payment on November 1st and then made an additional lump sum principal payment on the 10th of that month. The bank would first apply $27.40 (10 days x $2.74 per day) of his payment to interest and then the bank would apply the rest of the payment to the principal balance. The software will figure how much interest is owed when a payment is made and it will divide the correct portions to be applied to interest and principal.