Loan Repayment Calculator
Repayment Strategies
Understanding Loan Repayment
How Loan Repayment Works
When you make a loan payment, part goes toward interest (the cost of borrowing) and part goes toward principal (the actual loan balance). Early in the loan, most of your payment goes to interest. Over time, more goes toward principal.
Amortization Explained
Amortization is the process of spreading loan payments over time. Each payment is calculated so the loan is fully paid off at the end of the term, with a consistent payment amount throughout (unless you make extra payments).
The Power of Extra Payments
Extra payments go directly to principal, which reduces the balance that accrues interest. This creates a compounding effect that can save thousands and years on your loan.
| $25,000 Loan @ 8% | Standard | +$50/mo | +$100/mo |
|---|---|---|---|
| Monthly Payment | $507 | $557 | $607 |
| Payoff Time | 60 months | 50 months | 44 months |
| Total Interest | $5,425 | $4,447 | $3,756 |
| Interest Saved | - | $978 | $1,669 |
Repayment Calculation Methods
Fixed Payment
You set the payment amount; calculator finds how long until payoff. Useful for budgeting when you know what you can afford.
Fixed Term
You set the payoff time; calculator finds the required payment. Useful when you have a target date to be debt-free.
Extra Payments
Compare standard payments vs. adding extra. See exactly how much time and money you save with additional principal payments.
Tips for Faster Payoff
When to Prioritize Payoff
Pay Off Faster When:
- Interest rate is high (8%+)
- You have an emergency fund
- No employer 401(k) match unused
- Debt causes stress
- You want peace of mind
Consider Minimum When:
- Low interest rate (under 4-5%)
- No emergency fund yet
- Employer match available
- Can invest at higher return
- Tax-deductible interest
Important Note
Before making extra payments, check if your loan has prepayment penalties. Most personal loans and mortgages don't, but some do. Also ensure extra payments are applied to principal, not future payments - you may need to specify this with your lender.
Frequently Asked Questions
How much can I save by making extra payments?
Extra payments go directly to principal, reducing future interest charges. On a $25,000 loan at 8% for 5 years, paying $100 extra monthly saves about $1,700 in interest and pays off the loan 16 months early. The higher your interest rate and remaining balance, the more you save with extra payments.
Should I pay extra or invest the money instead?
Compare your loan interest rate to expected investment returns. If your loan is at 8% and investments average 7%, paying extra on the loan gives a guaranteed 8% return. If your loan is at 4% and investments earn 7%, investing might be better - but it carries risk. Also consider the psychological benefit of being debt-free.
What is the difference between avalanche and snowball methods?
Avalanche: Pay minimums on all debts, put extra toward the highest-rate debt. Saves the most money mathematically. Snowball: Pay minimums on all, put extra toward the smallest balance first for quick wins. Less optimal financially but provides motivation through faster payoffs. Choose based on your personality.
Do I need to notify my lender about extra payments?
Often yes. By default, some lenders apply extra money to next month's payment instead of principal. Specify 'apply to principal' when making extra payments. Check with your lender about prepayment penalties - most consumer loans don't have them, but some do. Set up your extra payments correctly from the start.