Loan Prepayment Calculator
See what an extra payment or a lump sum does to your loan: how much interest you save, how much sooner you finish, or how far the monthly payment drops. You can also check whether prepaying beats investing the same money.
Your result
Enter your loan details above to see the result.
For guidance only, not financial advice. This assumes a standard loan with a fixed rate and equal monthly payments. Real loans can differ in how interest is calculated, how extra payments are applied and what fees apply, so confirm the figures with your lender before you pay.
What prepaying a loan really does
A normal loan is paid back in equal monthly instalments. Each instalment covers the interest that has built up since last month and the rest reduces the balance you owe. Early on, most of every instalment is interest. A prepayment is any amount you pay on top of the instalment, and the whole of it goes against the balance.
That is the entire trick. Because next month's interest is worked out on the balance, a smaller balance means less interest, and the next instalment pays off more of the balance than it would have. A little extra paid early keeps working for every month that is left.
How to use this calculator
- Enter the balance you still owe, the yearly interest rate, and how long the loan has left to run.
- Cut the term keeps your payment the same and shows how much sooner you finish and how much interest you avoid. Choose a monthly extra amount or a one-time lump sum.
- Cut the EMI takes a lump sum and shows how much lower the monthly payment becomes if the end date stays where it is.
- Prepay or invest? compares putting the money into the loan against investing it at the return you expect, and shows the break-even return.
- Open More options to enter your real payment or a prepayment fee.
The formulas
Monthly rate r = annual rate ÷ 12 ÷ 100
Payment = balance × r ÷ (1 − (1 + r)−n) (n = months left)
Each month: interest = balance × r; principal paid = payment − interest
New balance = balance − principal paid − any extra payment
The calculator runs that month by month until the balance reaches zero, once for the loan as it stands and once with your extra payments. The difference between the two is your saving. When you choose to lower the payment instead, it recalculates the instalment from the reduced balance and the months that remain.
Worked examples
Take a balance of 200,000 at 7 percent with 20 years left. The monthly payment is 1,550.60 and over the full term you would pay about 172,143 in interest.
Extra every month
Paying 200 extra each month finishes the loan after 189 months, which is 15 years and 9 months. That is 4 years and 3 months early and saves roughly 41,691 in interest, for about 200 a month of extra effort.
A lump sum now
A one-off 20,000 paid today shortens the loan by 45 months (3 years and 9 months) and saves about 50,736 in interest. The same 20,000 paid after five years saves about 31,774, so timing matters a lot.
A lump sum used to lower the payment
If the 20,000 goes in today and the end date stays at 20 years, the monthly payment falls from 1,550.60 to about 1,395.54, a drop of about 155 a month. Total interest falls by about 17,214, less than the 50,736 saved by shortening the term, because you keep paying interest for longer.
Shorten the term or lower the payment?
Both use the same extra money but give different benefits. Shortening the term gets you debt-free sooner and saves the most interest. Lowering the payment gives you more room in your monthly budget but you stay in debt for longer. If you are comfortable with the payment you have now, shortening the term is normally the better value. If your income is uncertain, a lower payment can be worth the extra interest.
Prepay or invest?
Paying down a loan earns you a return equal to the interest rate, and it is certain. Putting the same money in an investment may earn more or less, and it can lose value. The calculator compares both on equal terms. In the prepay case, once the loan is gone it assumes you carry on investing the payment you used to make. In the invest case you keep making the normal payments and invest the extra amount. Both end with no debt at the original end date, and the one with more money wins.
The break-even return is the yearly investment return at which the two come out equal. Beat it comfortably, after tax and fees, and investing can come out ahead. Fall short and prepaying wins. Because prepaying carries no risk, many people prefer it when the two are close. Treat the result as a comparison of numbers, not a recommendation.
Before you prepay
- Keep an emergency fund. Money paid into a loan is hard to get back if you need it.
- Clear higher-rate debt first. A credit card at 20 percent costs far more than a loan at 7.
- Read the prepayment terms. Look for fees, minimum amounts, annual limits and whether extra payments reduce the term or the instalment by default.
- Check any tax relief. If part of your interest is deductible where you live, paying it off sooner reduces that benefit.
- Make sure the extra is applied to principal. Ask your lender to apply it to the balance, not to future instalments.
Common mistakes
- Waiting until the end of the loan. Extra payments are worth the most in the first years, when the balance and the interest are highest.
- Ignoring fees, so that a saving on paper is smaller in practice.
- Using the original term instead of the time that is actually left.
- Comparing a guaranteed saving with a hoped-for investment return as if both were certain.
- Emptying all savings to prepay and then borrowing again at a higher rate.
Frequently asked questions
How does paying extra on a loan save interest?
Interest is charged on the balance you still owe. Every extra payment goes straight against that balance, so next month's interest is calculated on a smaller number, and the month after that on a smaller one again. The saving compounds in your favour, which is why an extra payment made in the first years of a long loan saves far more than the same amount paid near the end.
Should I shorten the term or lower the monthly payment?
Shortening the term saves the most interest, because you keep paying the same amount and the loan simply ends sooner. Lowering the payment leaves the term alone and spreads the benefit across every remaining month, which saves less interest but eases your monthly budget. If you can afford the current payment, keeping it and shortening the term is usually the better financial choice. If cash flow is tight, a lower payment gives you breathing room. The Cut the EMI tab and the Cut the term tab let you compare both.
What is a lump-sum prepayment?
It is a one-off extra payment, such as a bonus, tax refund or savings, applied to the loan balance in one go. Lenders usually let you choose whether the lump sum shortens the loan or lowers the instalment. Not all loans offer both options, so check yours.
Is it better to prepay a loan or invest the money?
It depends on the return you can earn after tax and fees compared with the interest rate on the loan. Prepaying gives a guaranteed return equal to the loan's interest rate, because every pound or dollar you do not pay in interest is yours. Investing may earn more, but not with certainty. The Prepay or invest tab shows the break-even return: if you are confident of beating it after tax, investing can win, and if not, prepaying is the safer choice. It is a comparison of numbers, not financial advice.
Why is the break-even return close to my loan rate?
Because prepaying is effectively an investment that earns the loan rate with no risk. To make investing worthwhile you need to beat that rate, and by enough to be worth the risk, taxes and fees. The break-even shown in the calculator is the return at which both options end up with the same wealth. It is typically a little different from the quoted loan rate because the loan rate is quoted as a nominal annual rate compounded monthly.
Do lenders charge a prepayment fee?
Some do. Fees vary by lender, loan type, and country, and may only apply during the first few years or above an annual limit. Check your loan agreement. If there is a fee, enter it under More options as a percentage of the amount you prepay and the calculator will subtract it from the savings.
What if my extra payment is larger than the balance?
Then the loan is cleared. The calculator caps the extra payment at the amount you still owe, and shows the loan as paid off at that point.
Should I make extra payments or build an emergency fund first?
Most people are better off holding a cash buffer first, since it is hard to get money back out of a loan once you have paid it in. Higher-interest debt such as credit cards is usually worth clearing before a lower-rate loan too. After that, prepaying a loan whose rate is higher than you could earn safely elsewhere can be a sound use of spare cash.
Does prepaying affect tax relief on loan interest?
In some countries part of the interest on certain loans, such as home loans, is tax-deductible. Paying the loan off sooner means less deductible interest, which reduces the real benefit of prepaying. Rules differ widely and change over time, so check with your tax authority or an adviser before relying on this.
Can I use this for a car loan, personal loan or mortgage?
Yes, as long as it is a standard amortising loan where interest is charged on the remaining balance and you pay a fixed instalment each month. It will not suit loans with unusual structures such as interest-only periods, balloon payments or variable rates that change during the term. For those, use the result as an estimate.
Why does the calculator ask for the remaining term and not the original one?
Because prepayment only affects what is left. Enter your current outstanding balance and the number of years and months still to run, and the calculator works out the payment. If you know your exact instalment, enter it under More options and the term is worked out from that instead.
Is anything I type saved or sent anywhere?
No. The sums run in your browser and nothing you enter is uploaded or stored on our servers.
Related calculators
For a full repayment schedule use the loan EMI calculator, for home loans see the mortgage calculator, and to see what regular investing can build, try the compound interest calculator or the SIP calculator.