Loan Extra Payment Accelerator
See how extra monthly or lump-sum payments shorten your loan term and cut the total interest you'll pay.
Worked Examples
Example 1: Mortgage Acceleration
Problem:$300,000 mortgage at 6.5% for 30 years. Homeowner can afford $300 extra monthly.
Solution:Base payment: $1,896. With $300 extra: $2,196/month. Normal payoff: 30 years, $382,633 total interest. With extra: ~22 years, ~$254,000 interest. Savings: ~$128,000 interest, 8 years.
Result:$128K interest saved | 8 years early payoff | Worth $42/month in opportunity cost
Example 2: Auto Loan Payoff
Problem:$25,000 auto loan at 7% for 5 years. Can add $100/month extra.
Solution:Base payment: $495. With $100 extra: $595/month. Normal: 60 months, $4,700 interest. With extra: ~47 months, $3,600 interest. Savings: $1,100 interest, 13 months early.
Result:$1,100 saved | 13 months early | Car paid off in under 4 years
Example 3: Student Loan Strategy
Problem:$50,000 student loans at 5.5% over 10 years. Receives $2,000 annual tax refund to apply.
Solution:Base payment: $543. Annual lump sum of $2,000 applied. Normal: 120 months, $15,122 interest. With annual extra: ~96 months, $11,800 interest. Savings: $3,322 interest, 2 years early.
Result:$3,322 saved | 2 years early | Tax refund fully utilized
Frequently Asked Questions
How do extra payments reduce interest?
Extra payments go directly to principal, reducing the balance faster. Since interest is calculated on remaining balance, lower balance = less interest. The effect compounds—each extra payment saves interest for all remaining months.
Should I make extra payments or invest?
Compare your loan rate to expected investment returns after tax. If loan is 6% and you can earn 8% investing, investing may be better mathematically. But guaranteed loan interest savings may be worth more than uncertain investment returns.
Is it better to pay extra monthly or annually?
Monthly is slightly better because you reduce principal sooner. But annual lump sums (tax refunds, bonuses) work well too. Any extra payment helps—consistency matters more than timing.
Will my lender apply extra payments correctly?
Specify that extra payments should go to principal, not future payments. Some lenders prepay future months instead. Check your statement to confirm principal is actually decreasing.