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Why is the balance on my loan larger than the loan itself?
Let's say you created a loan for $10,000 and are making a payment exactly equal to the accrued interest every month. So why does the balance sheet always show a balance at the end of the month larger than the original principal?
This is normal. Offtoa assumes that you took the loan out at the beginning of the month and thus interest accrues during the month. By the end of that first month, the principal (and thus the amount of your liability) will equal the original amount of the loan plus interest. On the first day of the second month, you will make a payment, thus bringing the principal back down to the original loan amount. By the end of the second month, new interest will accrue and the principal will once again be equal the original amount of the loan plus interest. As long as your monthly loan payments are exactly equal to the monthly interest, the principal will never grow.
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