Loan servicing software applies prepayments and partial payments through its automated allocation logic. When a borrower pays more than scheduled or only part of the amount due, the system recalculates interest, principal, and remaining balances automatically. The impact on future interest accrual is applied immediately based on contractual rules. For example, a prepayment may reduce principal and lower future interest exposure without affecting past accrued interest. This avoids the recalculation errors that commonly occur when adjustments are handled manually.