What is the impact on the principal balance after each installment payment on a Management Recruiters loan?

According to Management Recruiters's 2024 Franchise Disclosure Document, the principal balance of a loan from HQ Financial Corporation is reduced by the amount of each installment payment. The FDD states that the principal is payable in equal monthly or weekly installments, based on the agreement between Management Recruiters and the franchisee. These installments are paid together with interest, which is calculated on a variable interest rate.

Each installment payment includes interest calculated from the due date of the preceding installment, based on the remaining principal balance. This means that with each payment, the interest portion is calculated on the reduced principal, and the remaining amount of the installment is applied to further reduce the principal. This arrangement is typical for amortizing loans, where the borrower pays down the principal over time with each payment.

Management Recruiters allows franchisees to prepay the loan in whole or in part at any time without penalty, but any prepayment must include accrued interest up to the date of prepayment. If a franchisee fails to make a payment within 30 days of the due date, Management Recruiters may declare the entire loan amount immediately due and payable, and the interest rate on the unpaid balance will increase to 18% per annum, not exceeding the maximum legal rate. This highlights the importance of timely payments to avoid penalties and potential acceleration of the loan.