Loan Prepayment Calculator
Every extra dollar you pay toward a loan goes straight to the principal, cutting the interest you'll pay over the loan's life. Enter your loan details plus an extra monthly payment to see how many months you save and how much interest you avoid.
Loan prepayment
See how extra payments cut your loan term and total interest.
FAQs
Does prepaying reduce my monthly payment or my loan term?
Usually it shortens the loan term while your scheduled payment stays the same — you finish earlier and pay less total interest. Some lenders offer the option to reduce the payment instead; ask which applies to your loan.
Is it always smart to prepay a loan?
Not always. If your loan rate is very low and you could earn more by investing, or if you'd drain your emergency savings to do it, holding the cash may be wiser. Prepayment shines most on high-rate debt.
How it works
In the early years of a loan, most of each payment goes to interest, not principal. Extra payments attack the principal directly, which shrinks every future interest charge — that's why even modest prepayments save a surprising amount.
Worked example: On a $20,000 loan at 8% for 5 years, the regular payment is about $406 a month, and you'd pay roughly $4,331 in total interest. Add an extra $100 a month and the loan clears about 13 months early, saving roughly $1,000 in interest.
The earlier you start prepaying, the bigger the payoff: extra payments in year one kill more future interest than the same dollars in year four. One-time lump sums (like a bonus) work the same way — enter them as an equivalent monthly extra to see the effect.
Before committing, check for prepayment penalties and make sure extra payments are applied to principal, not just held as future payments. And keep an emergency fund intact — paying down cheap debt at the cost of going into expensive debt later is a false economy.
Why Extra Payments Beat Higher Payments
You don't need to refinance or renegotiate to pay less interest — you just need to pay extra principal. Because interest is charged on the remaining balance, every extra dollar permanently reduces the base that future interest is calculated on.
The effect snowballs: the first extra payment saves a little interest, which means the next payment clears a little more principal, which saves a little more interest. Small, early extras compound in your favor exactly like investments compound — in reverse.
Lump Sum vs Monthly Extra: Which Wins?
A lump sum paid today always beats the same total spread over future months, because money applied now stops interest sooner. A $1,200 bonus paid this month saves more than $100 extra each month for a year.
But the best strategy is the one you'll repeat. If a bonus is uncertain, commit to the monthly extra; if the bonus lands, throw it at the principal too. Consistency plus windfalls is the fastest combination.
The Prepayment Checklist Before You Pay Extra
Three checks before you prepay: confirm there's no prepayment penalty, confirm extras are applied to principal (not advance payments), and confirm your emergency fund stays funded. Then target your highest-rate debt first — the math is unambiguous.
One exception: if your loan rate is below what you'd reliably earn elsewhere and you have no high-rate debt, investing the extra may leave you wealthier. Run both numbers before you decide.