Loan comparison
How extra payments change a loan
An extra payment applied to principal lowers the balance sooner. Because later interest is calculated on that smaller balance, the loan may finish earlier and accumulate less total interest.
The effect compounds through the schedule
In a fixed-rate amortizing loan, each month's interest equals the outstanding balance multiplied by the monthly rate. An additional principal payment reduces that balance beyond the amount in the original schedule. The next month's interest is therefore slightly lower, allowing more of the following payment to reduce principal.
The process repeats until the balance reaches zero. The interest rate itself does not change; the amount exposed to that rate changes.
Compare a recurring extra loan payment with the baseline schedule.
Worked example
Add $100 to a five-year loan payment
Baseline: $20,000 principal, 6% fixed annual rate, 60 months, and a required payment of approximately $386.66.
| Scenario | Planned payment | Payoff | Total interest |
|---|---|---|---|
| Required payment | $386.66 | 60 months | $3,199.36 |
| +$100 monthly | $486.66 | 47 months | $2,444.38 |
Under the model, the extra $100 shortens the schedule by 13 months and reduces estimated interest by $754.98. The final payment is smaller because only the last balance plus that month's interest remains due.
Compare the two schedules →Check the contract and payment instructions
The mathematical comparison assumes every extra dollar reduces principal immediately. Real servicers may hold an early payment, advance a due date, or apply money according to contractual rules. Confirm how to label an additional principal payment and check the account afterward.
The Consumer Financial Protection Bureau advises borrowers to verify that extra mortgage payments are applied to principal. CFPB also notes that a loan may have a prepayment penalty or fees associated with some payment plans.
A lower interest total is one part of the decision
The calculation shows the effect inside one loan. It does not compare that use of cash with emergency savings, other debts, retirement contributions, or other priorities. It also does not model the value of keeping money liquid.
Compare the baseline and extra-payment scenarios, understand the contractual rules, and decide using the full financial context. This guide describes the math rather than recommending prepayment for every borrower.
What the current model supports
The calculator supports one recurring monthly extra amount on a fixed-rate, fully amortizing loan. It excludes one-time lump sums, changing extras, variable rates, fees, and recasting. Review the methodology and the amortization guide before comparing results with a lender statement.
Common questions
Frequently asked questions
How does an extra payment reduce loan interest?
When the extra amount is applied to principal, the next period starts with a smaller balance. Interest calculated on that smaller balance is lower.
Does the required monthly payment change?
In this model the contractual payment stays the same and the extra amount is added to it. Some real loans may be recast or handled differently.
Can every loan be paid early without a fee?
No. Review the contract for prepayment penalties, servicing fees, and rules governing how additional money is applied.
Does this calculator support one-time extra payments?
The current loan calculator models one recurring extra monthly payment. It does not model irregular or one-time lump sums.