It feels like even though this topic has been covered many times here, people still confuse advance payments with extra principal repayments. At least for me, these have worked as intended every time, as long as I have ensured that the bank clerk and I are talking about the same thing.
Here is a recap:
Advance Payment
In an advance payment, the extra amount is not applied to the debt principal; instead, the amount exceeding the original monthly installment only pays off future installments. The original repayment schedule remains unchanged.
The idea of an advance payment is to pay future bills in advance – this way, for example, the loan does not need to be repaid for the next three months. After this, payments resume as normal.
An advance payment is worthwhile if you want to, for example, pay off the installments for an upcoming summer holiday in advance so that you have more money available for your leisure time. However, the loan term remains unchanged with this payment method.
Extra Principal Repayment
An extra principal repayment is a lump sum used to reduce the total debt, i.e., the loan principal. This repayment is worthwhile if you have a single, larger sum available. As the total loan principal decreases, the interest costs charged on it also decrease.
Monthly payments remain the same, but the total loan term is shortened. An extra principal repayment therefore reduces the total cost of the loan.