Loan Payoff Calculator
Your details
Advanced options
Result
Time saved
- Interest saved
- $865
- Cleared in
- 4 years 1 month (49 months)
- Scheduled payment
- $489
- Your payment with extra
- $589
- Interest on the current schedule
- $4,349
- Interest with extra payments
- $3,484
- Saved per extra dollar paid
- $865 saved for $4,900 paid early
- Paying $100 extra a month clears the loan 11 months early and saves $865 in interest.
- You pay $4,900 extra in total and save $865, so every extra dollar returns 0.18 in avoided interest. That return is guaranteed and tax-free, which is the argument for prepaying a high-rate loan ahead of investing.
- Designate extra money as a principal payment. Lenders may otherwise hold it against the next instalment or treat it as paying ahead, which does not reduce the interest at all. Check for a prepayment penalty on older or subprime loans.
What each extra amount achieves
The return per extra dollar rises with the rate and falls as the term shortens.
| Extra a month | Cleared in | Time saved | Interest saved |
|---|---|---|---|
| $0 | 60 months | — | $0 |
| $50 | 54 months | 6 months | $481 |
| $100 (yours) | 49 months | 11 months | $865 |
| $200 | 41 months | 1 year 7 months | $1,439 |
| $500 | 28 months | 2 years 8 months | $2,390 |
How much do extra payments save on a loan?
Extra payments go straight to principal, so they remove the interest that balance would have accrued for the rest of the term. On a $25,000 loan at 6.5% over 60 months, an extra $100 a month clears it 11 months early and saves $865.
payment = P · [r(1+r)ⁿ] / [(1+r)ⁿ − 1] each month: interest = balance × r, principal = payment − interest- P
- Balance outstanding
- r
- Monthly rate — annual rate ÷ 12
- n
- Months remaining on the schedule
An amortising loan charges interest on the balance outstanding, so anything that reduces the balance early removes every future interest charge that balance would have generated. That is why an extra payment is worth more than its face value, and why it is worth more the earlier it lands. An extra $100 in month one avoids interest for the remaining 59 months; the same $100 in month 55 avoids almost nothing. The saving is also non-linear in the amount: doubling the extra payment more than doubles the months saved, because each additional dollar compounds against a schedule that is already shortening. The practical trap has nothing to do with arithmetic. Most lenders will apply an unlabelled overpayment to the next instalment rather than to principal, which reduces nothing — it just pays you ahead. Extra money has to be designated as a principal payment, and on older or subprime loans it is worth checking for a prepayment penalty first.
- Find the balance, rate and months remaining on the loan.
- Calculate the scheduled payment from those three figures.
- Multiply the balance by the monthly rate for this month's interest.
- Subtract that interest from your total payment to get principal.
- Reduce the balance and repeat until it reaches zero.
Worked example: A $25,000 balance at 6.5% with 60 months left, paying $100 extra a month
A $25,000 balance at 6.5% with 60 months left, paying $100 extra a month
The scheduled payment on $25,000 at 6.5% over 60 months is $489.15, and run to term that costs $4,349 in interest. The first month's interest is 25,000 × 0.065 ÷ 12 = $135.42, so $353.73 of that first payment reduces the balance. Adding $100 makes the payment $589.15, and the loan then clears in 49 months instead of 60 — 11 months early — with $3,484 of interest, a saving of $865. The return is what makes the case: you pay roughly $4,900 earlier than scheduled and avoid $865 of interest, which is a guaranteed, tax-free return of about 18 cents per extra dollar over the life of the loan. Doubling the extra to $200 clears it in 42 months and saves $1,510, more than proportionally, because each additional dollar works against a schedule that is already shortening.
What each loan payoff input means
- Loan balance
- What you still owe today, not the original loan amount.
- Interest rate
- The annual rate on the loan.
- Months remaining
- How many payments are left on the current schedule. The scheduled payment is derived from this rather than entered, so the two always agree.
- Extra each month
- Added to every payment. On most loans this must be designated as a principal payment, or the lender may apply it to the next instalment instead.
- One-off lump sum
- A single extra payment applied immediately. The earlier it lands, the more interest it avoids.
What this loan payoff does not account for
- Extra money must be designated as a principal payment. Most lenders will otherwise apply it to the next instalment, which pays you ahead without reducing interest at all.
- Timing matters more than amount. An extra payment in month one avoids interest for the whole remaining term; the same amount near the end avoids almost none.
- Check for a prepayment penalty before accelerating. These are uncommon on current mainstream loans but still appear on older, subprime and some commercial agreements.
- This assumes a fixed rate and no fees. A variable-rate loan changes the schedule whenever the rate moves.
- Prepaying competes with other uses of the money. A guaranteed saving at the loan rate beats a risky investment at a similar expected return, but not high-interest debt elsewhere or an unfunded emergency reserve.
- On a mortgage, the payment usually includes escrowed tax and insurance that are not affected by prepayment. Only the principal and interest portion is modelled here.
- Student loans and some instalment loans have their own payment-allocation rules across multiple balances, which can send extra money somewhere other than the highest-rate loan.
Frequently asked questions
How much does an extra $100 a month save?
On a $25,000 loan at 6.5% with 60 months left, it clears the loan 11 months early and saves $865 in interest. The saving rises with the rate and with how early the payments start.
Is it better to pay extra monthly or make a lump sum?
A lump sum paid now saves more than the same total spread over time, because it reduces the balance sooner. Both beat paying the scheduled amount, and monthly extras are easier to sustain.
Why didn't my extra payment reduce my balance?
It was probably applied to your next instalment rather than to principal. Most lenders require extra money to be explicitly designated as a principal payment, otherwise it just pays you ahead.
Should I pay off my loan early or invest?
Prepaying returns the loan's interest rate, guaranteed and tax-free. That beats a risky investment at a similar expected return, but clear higher-rate debt and fund an emergency reserve first.
Does paying off a loan early hurt my credit score?
It can cause a small, temporary dip by closing an active account and reducing your credit mix. The effect is minor and short-lived compared with the interest saved.
What is a prepayment penalty?
A fee for repaying a loan ahead of schedule, designed to recover the lender's lost interest. Uncommon on mainstream loans today but still found on older, subprime and some commercial agreements.
Sources and review
“A prepayment penalty is a fee that some lenders charge if you pay off all or part of your mortgage early.”
What is a prepayment penalty? — Consumer Financial Protection Bureau
Last reviewed .