How this calculator works
The scheduled payment is the level amount that would clear the balance in the remaining term. Every month the calculator charges interest on the opening balance, adds your extra amount to the scheduled payment and applies the total. Because the extra reduces principal, later interest charges are smaller and the loan ends earlier. The final payment is reduced to whatever remains. Savings are measured against the scheduled plan, so they include both the shorter term and the lower interest. There is no prepayment penalty in this model; check your agreement before committing to extra payments.
Formula
i = annual rate / 12; A = P × i / (1 - (1 + i)^(-n)). Each month: interest = opening balance × i; payment = min(A + extra, balance + interest); new balance = balance + interest - payment. Payoff months are counted until the balance is zero. Interest saved = interest under A alone - interest under A + extra.
Worked example
A $25,000 balance at 6% with 60 months remaining has a scheduled payment of $483.32. Adding $100 a month clears it in 49 months instead of 60, saving 11 payments, and cuts interest from $3,999.20 to $3,206.27, a saving of $792.93. The final payment is $206.91 rather than the full $583.32.
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Frequently asked questions
Should the extra payment be applied to principal?
Yes. Ask the lender to apply it to principal rather than to next month's payment. If it is treated as an early payment instead, the loan may not shorten at all.
Are prepayment penalties included?
No. Some fixed-rate loans charge a penalty for early repayment, which can offset the interest saved. Check the agreement and any disclosure before relying on the saving.
What if I skip the extra payment occasionally?
Each missed extra payment delays payoff. The estimate assumes the extra is paid every month without interruption.
Does this work for a mortgage?
It uses monthly compounding, which suits consumer loans and US mortgages. Canadian mortgages usually compound semi-annually; use the extra mortgage payments calculator for that convention.