Where are payments made under the Note first applied for Big O Tires?
Big_O_Tires Franchise · 2025 FDDAnswer from 2025 FDD Document
All payments hereunder, when made, shall be first applied to any fees, costs or other charges accrued and payable pursuant to this Note or the other Loan Documents (defined below), then to all accrued interest to the date of payment, and the remainder applied to payment of principal hereunder. The amortization schedule attached to this Note as Schedule 1 is for reference purposes only. Maker shall have the right to prepay the unpaid principal balance of this Note in whole or in part at any time or from time to time, without premium or penalty, provided that all accrued and unpaid interest on the unpaid principal balance of this Note, at the variable interest rate as set forth herein, is also paid to the date of such prepayment.
Source: Item 23 — RECEIPTS (FDD pages 102–535)
What This Means (2025 FDD)
According to Big O Tires' 2025 Franchise Disclosure Document, payments made under the Note are first applied to specific financial obligations. Any payments made by a franchisee will initially cover any outstanding fees, costs, or other charges that have accrued and are payable under the Note or related Loan Documents. After these fees and costs are satisfied, the remaining portion of the payment is then applied to cover any accrued interest up to the date of the payment. Finally, any remaining amount after covering fees, costs, and interest is applied to reduce the principal balance of the loan.
This order of payment application is standard practice in lending agreements. By prioritizing fees, costs, and interest, Big O Tires ensures that these obligations are met before reducing the principal balance. This approach protects the lender's immediate financial interests and ensures that all associated costs and interest are current.
For a prospective Big O Tires franchisee, understanding this payment hierarchy is crucial for managing their loan obligations effectively. Franchisees should be aware that their payments will not immediately reduce the principal balance; instead, they will first cover any outstanding fees, costs, and accrued interest. This knowledge can help franchisees plan their finances and ensure they allocate sufficient funds to cover all aspects of their debt obligations, avoiding potential penalties or defaults.