If my creditor cancels the interest I owe on a loan, does that also cancel the principal amount, or just the interest?

The rule runs downhill only

Article 1273 of the Civil Code states the asymmetry in one line: The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. Accessory obligations exist to support the principal one — the stipulated interest, a penal clause, and securities such as a guaranty, pledge or mortgage. Remove the debt and there is nothing left for them to attach to, so they fall away with it. Remove one of them and the debt is merely less well secured; it has not gone anywhere. A lender writing off interest is granting relief, not closing the account.

Why lenders waive interest and not principal

The concession is usually a restructuring rather than an act of generosity. Article 1253 provides that where the debt produces interest, payment of the principal is not deemed made until the interests have been covered, which is why a borrower paying what he can afford watches the balance stand still. Waiving the accrued interest resets that arithmetic: the same monthly payment now reduces the principal, and the account becomes capable of being finished. The lender keeps the amount actually lent and improves his chance of recovering it. Understanding it this way makes it obvious that the principal survives.

Get the waiver documented properly

A concession made in a phone call is worth little when the account is later sold or the officer who granted it moves on. Article 1270 treats condonation as essentially gratuitous and requiring acceptance by the obligor, and provides that express condonation must comply with the forms of donation. Whatever form is used, ask for a signed letter from the creditor identifying the loan, stating the exact amount of interest being waived, and saying whether it covers only interest accrued to a stated date or also interest going forward. That distinction is the one most often left ambiguous, and it is the one that matters.

Check what the restated balance actually contains

Once the waiver is granted, ask for a restated statement of account and read it against the letter. Statements frequently carry more than interest — a separate penalty or default charge, and collection costs — and a waiver of interest may leave those untouched unless the letter says otherwise. If a penalty remains and looks disproportionate, Article 1229 lets a court equitably reduce a penalty where the principal obligation has been partly or irregularly complied with, or where the amount is iniquitous or unconscionable. Settle the arithmetic in writing before you resume paying.

Related provisions

• Civil Code, Article 1273 — Remission of Principal vs. Accessory
• Civil Code, Article 1270 — Condonation or Remission
• Civil Code, Article 1271 — Delivery of the Credit Document
• Civil Code, Article 1253 — Interest Applied Before Principal
• Civil Code, Article 1229 — Equitable Reduction of the Penalty