When a note, bill, or other similar obligation is payable on demand or at a specified time, with interest annually, the annual interest that remains unpaid shall bear simple interest from the time it becomes due to the time of final settlement; but if in a year, reckoning from the time the annual interest began to accrue, payments are made, the amount of those payments at the end of that year, with interest thereon from the time of payment, shall be applied: first, to liquidate the simple interest accrued from the unpaid annual interest; second, to liquidate the annual interest due; and third, to extinguish the principal. (Added 1967, No. 377 (Adj. Sess.), eff. March 26, 1968.)