direct-reduction loan plan

finance

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Last updated

June 25, 2026

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The direct-reduction loan plan is a method for repaying loans, particularly mortgages, where each fixed monthly payment is divided between interest and principal. Initially, a larger portion goes towards interest, but as the loan progresses, more of the payment is applied to the principal, and less to interest. This plan was pioneered by savings and loan associations and is the basis for most modern loan amortization schedules.1

This contrasts with other payment strategies like biweekly payments, where making extra payments throughout the year can lead to paying off the loan faster and saving on interest. Direct peer-to-peer lending, on the other hand, is a financing method that connects borrowers directly with investors through online platforms, bypassing traditional financial institutions.23

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savings and loan association
…plan for loan repayment, the direct-reduction loan plan, was the prototype of present-day loan-amortization plans requiring the home buyer to make a fixed payment each month; part of the payment is applied to the principal and part to interest, the former increasing each month as the latter decreases. Because high…
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…plan for loan repayment, the direct-reduction loan plan, was the prototype of present-day loan-amortization plans requiring the home buyer to make a fixed payment each month; part of the payment is applied to the principal and part to interest, the former increasing each month as the latter decreases. Because high…
Read More