Loan Prepayment Savings Calculator
Paying a little extra on a loan each month is one of the most reliable ways to save money, and this calculator shows you exactly how much. The idea rests on a simple fact: interest is charged on the balance you still owe, so the faster you shrink that balance, the less interest you ever pay. When you add an extra amount to your scheduled payment, that whole extra goes against the principal, which lowers next month's interest, which leaves even more of the following payment to attack the principal. The effect compounds in your favor over the years. This tool takes your current balance, the annual interest rate, your scheduled monthly payment and the extra amount you intend to add, then builds two full amortization schedules side by side: one paying only the scheduled amount and one paying the scheduled amount plus your extra. It reports the total interest each path costs, the interest you save, and how many months sooner the loan is gone. Every figure is computed deterministically from the standard amortization rule, with a worked example below that reconciles exactly to the calculator so you can follow each step and trust the numbers.
Prepayment savings is the difference in total interest between paying only the scheduled amount and paying extra each month: two amortization schedules compared. On a 200,000 loan at 6% with a 1,199.10 payment, adding 200 per month saves $79,800.93 in interest and clears the loan 109 months sooner.
Prepayment savings formula
Each month: interest = balance x (rate / 12)
principal paid = (payment + extra) - interest
new balance = balance - principal paid
Interest saved = total interest (no extra) - total interest (with extra)
Months saved = months to zero (no extra) - months to zero (with extra)
The calculator runs this loop twice. There is no single closed-form answer because the number of months changes once you add extra, so the totals come from two complete amortization schedules.
Worked example
A 200,000 loan at 6% per year has a scheduled monthly payment of 1,199.10, which retires it in 360 months. You add 200 extra every month.
- Monthly rate = 6% / 12 = 0.5% = 0.005.
- Without extra: paying 1,199.10 retires the loan in 361 months and costs 231,677.06 in total interest.
- With 200 extra: paying 1,399.10 retires the loan in 252 months and costs 151,876.14 in interest.
- Interest saved = 231,677.06 - 151,876.14 = 79,800.93.
- Months saved = 361 - 252 = 109 months (about 9 years).
These are the calculator's default inputs, so the result above matches the widget exactly.
Loan prepayment savings calculator: frequently asked questions
How does paying extra on a loan save money?
Every extra dollar you pay above the scheduled payment goes straight to the principal balance. Because interest each month is charged on the remaining balance, a smaller balance means less interest accrues next month, and every month after. Over the life of the loan this compounding effect can save tens of thousands of dollars and shorten the term by years.
Is it better to pay extra monthly or make one lump sum?
Both reduce the principal and therefore the interest you pay. A consistent extra monthly amount is easier to budget and starts saving interest from the very first month. A lump sum early in the loan has an outsized effect because the principal is highest then. The earlier any extra payment lands, the more interest it removes.
Are there penalties for paying off a loan early?
Some loans carry a prepayment penalty, especially certain mortgages and auto loans. Federal rules limit these on most qualified mortgages, but you should check your loan agreement. The Consumer Financial Protection Bureau explains how to find and read prepayment terms. This calculator assumes no penalty, so subtract any fee from the savings shown.
Should I pay extra on the loan or invest instead?
Paying extra earns a guaranteed return equal to your loan rate. Investing may earn more but carries risk. A common rule of thumb is to clear high-rate debt first, then invest. Because the right choice depends on your rate, risk tolerance and tax situation, this tool only shows the guaranteed interest saved.
What is the prepayment savings formula?
There is no single closed-form formula. The calculator builds two amortization schedules, one with your scheduled payment and one with the extra amount added each month, and reports the difference in total interest and the difference in the number of months. Interest each month equals the balance times the monthly rate.
Official sources
- Loan repayment, interest and prepayment basics: US Securities and Exchange Commission, Investor.gov. As at 25 June 2026.
Reviewed by the CalculatorHub team, edited by James Graham, 25 June 2026. See our methodology. This is general information, not financial, tax, legal or investment advice.