This article explains how to make extra payments toward your loan principal using a bank wire transfer, how those payments are applied, and what to expect when sending wired funds.
Table of Contents
- What Is Principal?
- What Is an Extra Principal Payment?
- What Is a Bank Wire Transfer?
- How to Submit an Extra Principal Payment by Wire
- How Extra Principal Payments Impact Your Loan
- Important Things to Confirm Before Sending a Wire
What Is Principal?
Principal is the original amount borrowed on your loan.
Each standard loan payment typically includes:
- A portion toward interest
- A portion toward principal
Interest is calculated based on your remaining principal balance. As principal decreases, the total interest paid over time also decreases.
What Is an Extra Principal Payment?
An extra principal payment is any payment made in addition to your required monthly payment that is applied directly to reduce your loan balance.
This payment does not replace your scheduled payment — it is applied on top of it and reduces your outstanding principal once processed.
Example:
- Required monthly payment: $2,000
- Extra principal payment via wire: $10,000
- Total impact: $10,000 reduction in outstanding principal
What Is a Bank Wire Transfer?
A bank wire transfer is an electronic transfer of funds sent directly from one bank to another.
Wire transfers:
- Are typically used for large or time-sensitive transactions
- Settle quickly (often same-day, depending on timing)
- Usually involve a sending fee charged by your bank
Unlike ACH transfers, wire transfers are processed individually and are not automatically recurring unless you manually initiate each one.
How to Submit an Extra Principal Payment by Wire
Before initiating a wire transfer, obtain the official wiring instructions from your loan servicer. This typically includes:
- Receiving bank name
- Routing number (ABA)
- Account number
- Reference or memo instructions
When sending the wire:
- Include your loan number in the reference field.
- Clearly note “Principal Only Payment” in the memo or reference section.
- Confirm the total amount being wired.
⚠️ If the wire is not clearly designated as a principal-only payment, funds may:
- Be applied toward future scheduled payments.
- Be applied to outstanding interest.
After the wire is received and processed, your principal balance will be reduced accordingly.
How Extra Principal Payments Impact Your Loan
Extra principal payments made via wire can:
- Immediately reduce your outstanding loan balance once posted
- Lower total interest paid over the life of the loan
- Shorten your repayment timeline
- Improve your loan-to-value (LTV) ratio
Because interest accrues based on your remaining principal balance, reducing the balance earlier can result in meaningful long-term savings.
Important Things to Confirm Before Sending a Wire
- Have you confirmed the official wiring instructions directly with your servicer?
- Have you included your loan number in the reference field?
- Is the wire clearly marked as “Principal Only”?
- Are you aware of any wire fees charged by your bank?
- Have you confirmed cutoff times for same-day processing?
If you have questions about wiring instructions or how funds will be applied to your loan, please contact support before initiating your transfer.