Loan Payoff Calculator

How extra payments work

Extra payments go directly toward your loan principal. This reduces the balance faster, which means:

1. Less interest accrues each month
2. More of each payment goes to principal
3. The loan is paid off sooner

The power of extra payments

On a $25,000 loan at 7.5$500/month payment:

Extra Payment	Time Saved	Interest Saved
$50/month	7 months	$460
$100/month	13 months	$840
$200/month	22 months	$1,380
$500/month	36 months	$2,150

Types of extra payments

Monthly extra

• Most effective for reducing interest
• Easy to budget and automate
• Compounds savings over time

Yearly lump sum

Good for:

• Tax refunds
• Annual bonuses
• Commission payments

One-time payment

Use for:

• Inheritance
• Selling assets
• Large windfalls

Which loans to pay extra on

Prioritize by interest rate (debt avalanche method):

1. Credit cards (15-25% APR)
2. Personal loans (6-36% APR)
3. Auto loans (4-12% APR)
4. Student loans (3-8% APR)
5. Mortgages (3-7% APR)

Prepayment penalties

Some loans charge fees for paying early. Check for:

• Prepayment penalty clauses
• Penalty amounts and periods
• When penalties expire

Most auto loans and credit cards don't have prepayment penalties. Some mortgages and personal loans do.

Extra payment strategies

Round up payments

If your payment is $283, round to$300. The extra $17/month adds up.

Bi-weekly payments

Pay half your monthly payment every two weeks = 26 half-payments = 13 full payments/year (one extra payment).

Pay when you get paid

If paid bi-weekly, pay half when each paycheck arrives. Reduces average balance.

Use raises and bonuses

Allocate a portion of any income increase to debt payoff before lifestyle inflation.

Savings vs. paying off debt

Compare your loan interest rate to potential investment returns:

Loan Rate	Guaranteed Return	Recommendation
8%+	8%+	Pay off debt first
4-8%	4-8%	Balance both
< 4%	< 4%	Consider investing

Paying off debt is a guaranteed return equal to the interest rate.

When NOT to pay extra

Consider keeping the extra money if:

• You don't have an emergency fund (3-6 months expenses)
• You're missing employer 401(k) match (free money)
• Interest rate is very low (< 3-4%)
• You need liquidity for upcoming expenses

The math behind it

Each extra dollar reduces your balance, which reduces future interest:

$$\text{Interest Saved} = \text{Extra Payment} \times \frac{\text{Rate}}{12} \times \text{Remaining Months}$$

The earlier you make extra payments, the more you save because there are more months for the savings to compound.

Specify principal-only

When making extra payments:

1. Label clearly - Write "Apply to principal" on checks
2. Online - Look for principal-only payment option
3. Call lender - Confirm how extra payments are applied
4. Verify - Check next statement shows reduced principal

Some lenders may apply extra to future payments instead of principal if not specified.