In what order are FLP regular payments applied?

The correct answer outlines the order in which regular payments for a Farm Loan Program (FLP) are applied, starting with recoverable costs. This means that any additional costs that are recoverable by the lender must be settled first from the payment received. Following this, accrued interest is addressed, ensuring that any interest that has accumulated on the loan is paid off. Finally, the remaining amount of the payment is applied to the principal balance of the loan.

Understanding this sequence is crucial because it reflects how lenders prioritize claims against the payments they receive. By first addressing recoverable costs, lenders ensure that they can recoup any extra expenses they might have incurred in managing or servicing the loan. Then addressing accrued interest prevents any potential increase in the overall cost of the loan, while applying the remaining funds to the principal helps reduce the borrower’s outstanding debt directly.

This priority in payment application helps ensure that all parties are treated fairly and that the financial obligations of the borrower are structured in a way that minimizes the lender's risk.