When your company makes a payment, it is applied to your balance in a defined order set out in your agreement. Knowing that order helps you understand why your balance moves the way it does after each payment.
The typical order
- Outstanding charges that have arisen, such as a conditional charge, may be cleared first.
- Accrued interest or credit charge for the period.
- The principal — the amount originally drawn — which reduces the balance that future charges accrue on.
Why allocation matters
The order affects how quickly your principal comes down. Because interest accrues on the principal, reducing it sooner can lower the overall cost of credit. Your statement shows how each payment was split so you can follow the effect.
Overpayments and extra payments
If you want a payment to reduce the principal specifically, tell us when you make it, and we will confirm how it has been applied. We will also explain any effect on your schedule or future charges.
Where this is defined
The exact allocation order for your facility is in your agreement. We keep this article figure-free because amounts depend on your product and term. This is exempt business lending to your company, with no director guarantee; the Financial Ombudsman Service does not apply, so we resolve allocation questions with you directly.
See also: How are partial payments allocated to my balance?, How do late-payment charges work?, What is the difference between interest and fees?.