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Open the Loan Payoff Calculator →Most people accept their loan repayment schedule as fixed — make the monthly payment, wait for the term to end. But one of the most powerful financial moves you can make is to pay extra on your principal, even modestly. The interest savings can be dramatic.
Loan interest is calculated on your outstanding principal balance. Every time you make an extra payment, it goes directly to reducing that balance — which immediately reduces the amount of interest charged in all future months. This creates a compounding benefit: the lower the balance, the less interest accrues, the faster the principal falls.
An extra $100/month on a $20,000 car loan at 7% over 5 years saves approximately $450 in interest and pays the loan off 6 months early.
On a 30-year mortgage at 7%, your minimum monthly payment is approximately $1,663. Here is what different extra payment amounts do:
| Extra Monthly Payment | Years Saved | Interest Saved |
|---|---|---|
| $0 (minimum only) | — | — |
| $100/month extra | 4.5 years | ~$57,000 |
| $250/month extra | 8.5 years | ~$104,000 |
| $500/month extra | 13 years | ~$152,000 |
Paying an extra $250/month on a $250,000 mortgage saves over $100,000 in interest and pays the loan off in 21 years instead of 30. The maths of early repayment is compelling.
Before making extra payments, check two things with your lender:
If you have multiple debts, two strategies help you allocate extra payments:
The “best” method is the one you will actually stick to. The avalanche saves more in interest; the snowball keeps more people motivated.
Any time you receive a bonus, tax refund, or unexpected cash, applying even a portion to your loan principal has an outsized impact. A single $2,000 lump-sum payment on a 30-year mortgage in year 5 can save $6,000–$10,000 in total interest over the remaining life of the loan.
Enter your loan balance, interest rate, and extra payment amount to see your payoff date, total interest saved, and full amortisation schedule.
Calculate My Loan Payoff →The answer depends on the interest rate. If your loan rate is above 7%, paying it off early is likely the better return — it is a guaranteed, risk-free return equal to your interest rate. If your loan rate is below 5%, investing in a diversified index fund at an expected 7–9% annual return is likely to produce better long-term wealth. Between 5–7%, it is a personal decision that depends on your risk tolerance and the psychological value you place on being debt-free.