Final answer:
In equal, regular loan payments, a growing part is applied to the principal and a shrinking part to the interest over time due to the process of amortization, which is typical in loans such as mortgages and auto loans.
Step-by-step explanation:
Where loan payments are equal in size and made regularly, an increasing amount of each payment goes towards the principal, and a decreasing amount goes to interest. Initially, because the outstanding loan balance is higher, the interest part of the payment is substantial. However, as the borrower continues to make payments, the outstanding principal decreases, resulting in lower interest charges. Therefore, with each payment, a larger portion of the amount goes toward reducing the principal. This process is known as amortization and it's typical in fixed installment loans such as home loans or auto loans.
It's essential to understand this so borrowers can make informed decisions and possibly save money by making larger than minimum payments or additional payments to reduce the principal faster, thereby saving on interest.