How extra payments shorten a loan
On a fixed-rate amortizing loan, each month's interest is charged on the balance you still owe. Any money paid beyond the scheduled payment goes straight to principal, so every later month's interest is charged on a smaller balance. The scheduled payment does not change, so a larger share of each payment repays principal and the loan ends sooner.
new balance = B + interest − M − X
- B
- Balance at the start of the month
- r
- Monthly rate: APR ÷ 12
- M
- Scheduled monthly payment
- X
- Extra payment that month (monthly extra plus any one-time amount)
If you enter the remaining term instead of the payment, the scheduled payment is worked out with the standard amortization formula:
The calculator builds two month-by-month schedules from the same starting balance: one with the scheduled payment only, and one with your extra payments. The differences between them are your months and interest saved.
Worked example
A loan has $18,000 left at 7.5% APR, with 48 monthly payments to go. The scheduled payment is $435.22. Adding $100 every month changes the outcome like this:
| Scheduled payment | $435.22 |
|---|---|
| Payoff time | 48 months → 38 months |
| Remaining interest | $2,890.56 → $2,270.43 |
| Interest saved | $620.13 |
| Months saved | 10 |
The last payment on the faster schedule is only $467.29. A loan rarely ends on an exact multiple of the payment, so the final installment covers whatever balance and interest are left.
| +$50 a month | 5 months sooner · $348.06 saved |
|---|---|
| +$100 a month | 10 months sooner · $620.13 saved |
| +$200 a month | 16 months sooner · $1,016.99 saved |
Monthly extra or a one-time payment?
What matters is how much principal you repay early and how early. A dollar of principal repaid now stops accruing interest for every remaining month, while the same dollar repaid near the end saves very little.
On the example loan, a single $1,000 payment made with the next installment saves $331.53 and shortens the loan by 3 months. The $100-a-month plan saves more ($620.13) because, over the life of the loan, it repays far more than $1,000 early.
For the same total amount, earlier is better. A lump sum paid today saves more interest than the same total spread over the coming years.
Before you prepay
- Check for a prepayment penalty. US closed-end loan disclosures must state whether a penalty applies if you pay early, under Regulation Z § 1026.18(k). A penalty reduces, and can cancel out, the savings shown here.
- Make sure extra money goes to principal. Some servicers treat an extra amount as an early payment of next month's installment instead of reducing principal. Ask your lender how to direct it, and check your next statement.
- Precomputed-interest loans behave differently. Some loans fix the total interest at the start (for example, using the “Rule of 78s”). Paying early on those loans saves less than this calculator shows, which assumes simple interest on the remaining balance.
- Compare with other uses of the money. Paying down a 7.5% loan earns an effective, risk-free 7.5% on that money. Whether that beats keeping cash for emergencies or paying off higher-rate debt depends on your situation. A qualified adviser can help.
How to read your results
Interest saved is the difference in total interest between the two schedules, from today to payoff. Payoff time counts the monthly payments left. When you add a next payment date, the calculator also shows the calendar month of the final payment.
Your required monthly payment does not go down when you pay extra. The loan simply ends sooner. Some lenders offer a recast that lowers the payment after a large lump sum, which is a different outcome from the one shown here.
Choosing a loan in the first place? The loan comparison calculator shows how term and fees affect the total cost. For a new car loan, start with the auto loan calculator.
Assumptions
- Fixed interest rate; interest compounds monthly at APR ÷ 12.
- Payments, including extra payments, are made at the end of each month. Extra amounts go entirely to principal.
- A one-time payment is made together with the payment number you choose (1 = next payment).
- Interest is rounded to the cent each month, and the final payment is whatever clears the balance.
- In remaining-term mode, the scheduled payment is rounded to the cent and the last scheduled payment absorbs the difference.
- No prepayment penalties, late fees, escrow or insurance amounts are included.
Limitations
- Loans that accrue interest daily depend on the exact payment dates, so real savings can differ slightly.
- Variable-rate loans, interest-only periods and balloon payments are not modeled.
- For mortgages, enter principal and interest only. Escrow for taxes and insurance does not change the payoff.
- Your loan contract and servicer statements are the authority on your real balance and payoff amount.
Frequently asked questions
Will paying extra lower my monthly payment?
Usually not. On most installment loans the required payment stays the same and the loan ends earlier. Ask your lender whether it offers a recast if you would rather have a lower payment.
Does paying early help on a 0% loan?
It shortens the loan, but there is no interest to save. At 0% APR, the calculator will show interest saved as zero even when you pay off earlier.
Why does the calculator say my payment is too small?
When the scheduled payment is not larger than the first month's interest, the balance never goes down. Check that you entered the principal-and-interest payment and the APR, not a different rate or a payment that includes escrow.
Is it better to pay biweekly?
Paying half the payment every two weeks adds up to 26 half-payments, or 13 full payments a year. That is roughly one extra payment per year. You can approximate it here by entering one-twelfth of your payment as a monthly extra amount. Exact results depend on how your lender applies biweekly payments.
Can I use this for a credit card?
Credit cards have minimum payments that change with the balance and may have several rates, so this fixed-payment model is only a rough guide.
Sources
Definitions and rules referenced on this page. Calcendium is not affiliated with these publishers.
- Regulation Z, 12 CFR § 1026.18 — Content of disclosures
Consumer Financial Protection Bureau · United States · Checked October 20, 2026
Definitions of amount financed, finance charge, annual percentage rate, total of payments and prepayment disclosures.
- Auto loans — consumer tools
Consumer Financial Protection Bureau · United States · Checked October 20, 2026
General guidance on shopping for, negotiating and closing an auto loan.