Paying off your loan early can save thousands in interest—but is it the right move? This calculator shows exactly how much you'll save by making extra payments and helps you decide if accelerating payoff is the best use of your money.
How This Calculator Works
This calculator models early payoff strategies:
- Current Loan Balance: What you still owe
- Interest Rate: Your loan's APR
- Current Payment: Your regular monthly payment
- Extra Payment: Additional amount toward principal
- Time Saved: Months removed from loan term
- Interest Saved: Total dollars saved on interest
The Formula Explained
Extra payments reduce principal immediately, which reduces future interest charges.
For each extra dollar paid:
- Future interest saved ≈ Extra Payment × (Rate/12) × Remaining Months
The earlier you make extra payments, the more interest you save.
Step-by-Step Example
$25,000 Car Loan at 6.5%, 60 Months
| Strategy | Monthly | Term | Total Interest |
| Original schedule | $489 | 60 months | $4,340 |
| +$100/month | $589 | 47 months | $3,301 |
| +$200/month | $689 | 39 months | $2,640 |
| +$300/month | $789 | 34 months | $2,178 |
$100 extra saves $1,039 and 13 months!
Frequently Asked Questions
How much will I save by paying off my loan early?
Savings depend on your interest rate, balance, and how early you pay. Higher rates and earlier extra payments mean more savings. Use this calculator with your specific numbers. A general rule: you're earning a guaranteed return equal to your loan's interest rate.
Compare your loan rate to potential investment returns. Pay loans first if: (1) Loan rate exceeds 6-7%, (2) You value guaranteed returns, (3) You want debt freedom. Invest instead if: (1) Loan rate is very low (under 4%), (2) You'd get employer 401(k) match, (3) You have no emergency fund.
Extra payments should go directly to principal, not toward future payments. Verify with your lender that additional payments reduce principal rather than prepaying future installments. Some online portals have checkboxes for "apply to principal" when making extra payments.
Do early payoffs have penalties?
Some loans (especially mortgages) have prepayment penalties for paying off early. Check your loan documents. Most auto loans and personal loans have no prepayment penalty. If penalties exist, calculate whether savings exceed the penalty cost.
What's the best strategy for early payoff?
Options: (1) Fixed extra amount monthly—predictable and easy. (2) Lump sum payments—apply bonuses, tax refunds, etc. (3) Round up payments—pay $500 instead of $467. (4) Biweekly payments—equals one extra monthly payment per year. Consistency matters more than strategy.
Should I pay off my mortgage early?
Mortgage payoff is complex: (1) Rates are often low (making investing potentially better), (2) Interest may be tax-deductible, (3) Tying up equity in home reduces liquidity. Many advisors suggest: max retirement accounts first, then consider mortgage payoff. Emotional value of home ownership matters too.
How does paying off loans early affect my credit?
Paying off loans won't hurt your credit significantly. You may see a small dip (less credit mix, shorter average age), but the effect is minor. The benefit of being debt-free outweighs any small credit score impact. Credit rebounds quickly as you maintain on-time payments elsewhere.
Yes—refinancing starts a new loan with new terms, but you can still make extra payments. If refinancing lowers your rate, you may choose to: (1) Keep old payment amount (builds equity faster), or (2) Take lower payment and invest the difference. Both are valid depending on goals.
Key Points to Remember
- Earlier payments save more: Interest compounds, so early extra payments save the most
- Verify principal application: Ensure extra payments reduce principal, not prepay
- Consider opportunity cost: Low-rate loans may not be priority for extra payments
- Check for penalties: Some loans penalize early payoff
- Automate extra payments: Consistency wins over optimization