Checked 15 October 2026. What was checked. How these pages are maintained.
How extra payments help
Each month: interest = balance × monthly rate. The rest of the payment cuts principal. Extra money goes to principal. The loan ends when the balance hits zero. If the payment does not cover interest, the balance grows and this page will say so.
Confirm with your lender that extra amounts apply to principal and that there is no prepayment penalty.
Worked example
A $12,000 loan at 8% with a $240 minimum payment takes years to clear. An extra $50/month shortens the term and cuts total interest. The exact months depend on how the lender applies extra principal.
Some loans (especially car loans) have prepayment rules. A mortgage prepayment can be a lump sum against principal or an increased regular payment — this page models extra monthly principal.
Where an extra dollar goes
An $8,000 balance at 9 percent with a $200 monthly payment takes 48 months and about $1,547 of interest if nothing extra is paid. Add $40 a month, so the payment is $240, and the same balance takes 39 months and about $1,241 of interest. You save 9 months and about $307 of interest. Each month the interest is balance × 0.09 ÷ 12, and whatever is left of the payment reduces principal. The extra $40 never pays interest first. It cuts the balance, and next month’s interest is computed on that smaller balance. That is why the interest saved is larger than people expect from “only $40.”
If the payment does not cover the month’s interest, the balance grows and this page stops with an error instead of pretending the loan ends. Raising the payment above the interest is the fix, not a longer horizon. The simulator caps at 600 months so a tiny payment cannot spin forever.
The lender has to apply it to principal
Some car loans and personal loans treat an extra amount as a prepayment of future instalments rather than a principal reduction, or they charge a penalty. This model assumes every extra dollar reduces principal and that there is no penalty. A mortgage prepayment can be a lump sum, which is not the same as raising the regular payment. For the scheduled payment itself, with no extra, the auto loan calculator or the mortgage calculator is the cleaner starting point. Come here when you already have a balance and a payment and you want to see the effect of paying more.
Common questions
Should I include escrow?
No. Use principal and interest only.
Biweekly payments?
Treat them as a higher monthly extra, or run two weeks as half the monthly bill twice.