Making extra payments on your loan, often referred to as early repayment or prepayment, is a powerful financial strategy. It allows you to pay down your principal balance faster, significantly reducing the total amount of interest you pay over the life of the loan and shortening the time it takes to become debt-free. This calculator helps you visualize the impact of making additional monthly payments.
How the Calculator Works:
The calculator takes into account your original loan details, how much you've already paid, and the additional monthly amount you plan to pay. It then simulates the loan's amortization schedule with and without the extra payments to determine the total interest saved and the new payoff timeline.
Key Concepts:
Loan Amount: The initial sum borrowed.
Interest Rate: The annual percentage charged on the outstanding balance.
Loan Term: The total duration of the loan in months.
Months Already Paid: The number of payments you've already made towards the loan.
Extra Monthly Payment: The additional amount you plan to pay each month towards the principal.
The Math Behind the Savings:
At its core, the calculation involves simulating the loan amortization. For each month:
Interest Calculation: The interest for the month is calculated based on the remaining principal balance and the monthly interest rate (Annual Interest Rate / 12).
Payment Allocation: A regular loan payment is applied. This payment first covers the accrued interest for the month, and the remainder reduces the principal.
Extra Payment Application: Any additional payment (the 'Extra Monthly Payment') is then applied directly to reduce the principal balance further.
New Balance Calculation: The principal balance is updated after applying both the principal portion of the regular payment and the extra payment.
This process is repeated month after month until the loan balance reaches zero. The calculator compares the total interest paid and the total time taken in two scenarios: one with only regular payments and another with the added extra payments.
Original Monthly Payment (M): Calculated using the standard loan payment formula: `P * r / (1 – (1 + r)^-n)`, where P is the loan amount and n is the total loan term in months.
Interest Paid This Month: `Remaining Principal * r`
Principal Paid This Month: `M – Interest Paid This Month`
New Principal Balance: `Remaining Principal – Principal Paid This Month – Extra Monthly Payment`
The total interest saved is the difference between the total interest paid under the original schedule and the total interest paid with the early repayment strategy. The new payoff time is the number of months it takes to reach a zero balance when making extra payments.
Benefits of Early Repayment:
Reduced Total Cost: Significantly cuts down on the interest paid over time.
Improved Debt-to-Income Ratio: Having fewer outstanding debts can improve financial health indicators.
Peace of Mind: Eliminating debt reduces financial stress.
When is Early Repayment Most Effective?
Early repayment is generally most impactful on loans with higher interest rates and longer terms, such as mortgages, auto loans, and personal loans. While it can benefit any loan, the savings are more substantial where interest accrues quickly. It's also wise to consider if you have high-interest debts (like credit cards) to prioritize paying those off first.
function calculateEarlyRepayment() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTermMonths = parseInt(document.getElementById("loanTermMonths").value);
var monthsPaid = parseInt(document.getElementById("monthsPaid").value);
var extraPayment = parseFloat(document.getElementById("extraPayment").value);
var resultContainer = document.getElementById("result-container");
var totalInterestSavedDisplay = document.getElementById("totalInterestSaved");
var newPayoffTimeDisplay = document.getElementById("newPayoffTime");
var originalPayoffTimeDisplay = document.getElementById("originalPayoffTime");
var totalPaidWithExtraDisplay = document.getElementById("totalPaidWithExtra");
// Input validation
if (isNaN(loanAmount) || loanAmount <= 0 ||
isNaN(interestRate) || interestRate <= 0 ||
isNaN(loanTermMonths) || loanTermMonths <= 0 ||
isNaN(monthsPaid) || monthsPaid loanTermMonths ||
isNaN(extraPayment) || extraPayment < 0) {
alert("Please enter valid positive numbers for all fields. Months already paid cannot exceed the total loan term.");
resultContainer.style.display = "none";
return;
}
var monthlyInterestRate = (interestRate / 100) / 12;
// Calculate original monthly payment
var originalMonthlyPayment = (loanAmount * monthlyInterestRate) / (1 – Math.pow(1 + monthlyInterestRate, -loanTermMonths));
var remainingBalance = loanAmount;
var totalInterestPaidOriginal = 0;
var originalTotalMonthsToPay = 0;
// Simulate original amortization to find remaining balance after monthsPaid
for (var i = 0; i < monthsPaid; i++) {
var interestForMonth = remainingBalance * monthlyInterestRate;
var principalForMonth = originalMonthlyPayment – interestForMonth;
remainingBalance -= principalForMonth;
totalInterestPaidOriginal += interestForMonth;
if (remainingBalance 0) {
currentMonth++;
var interestForMonth = newBalance * monthlyInterestRate;
var principalReduction = originalMonthlyPayment – interestForMonth + extraPayment;
// Ensure principal reduction doesn't exceed the balance + interest
if (principalReduction > newBalance + interestForMonth) {
principalReduction = newBalance + interestForMonth;
}
newBalance -= principalReduction;
totalInterestPaidWithExtra += interestForMonth; // Interest is calculated before principal reduction
newLoanTermMonths++;
if (newBalance loanTermMonths * 5) { // Arbitrary safety limit
alert("Calculation exceeded safety limit. Please check your inputs.");
resultContainer.style.display = "none";
return;
}
}
// Calculate original total interest and original total months needed from start
remainingBalance = loanAmount;
totalInterestPaidOriginal = 0;
originalTotalMonthsToPay = 0;
while (remainingBalance > 0) {
originalTotalMonthsToPay++;
var interestForMonth = remainingBalance * monthlyInterestRate;
var principalReduction = originalMonthlyPayment – interestForMonth;
if (principalReduction > remainingBalance + interestForMonth) {
principalReduction = remainingBalance + interestForMonth;
}
remainingBalance -= principalReduction;
totalInterestPaidOriginal += interestForMonth;
if (remainingBalance loanTermMonths * 5) { // Safety break
alert("Original calculation exceeded safety limit.");
resultContainer.style.display = "none";
return;
}
}
var totalInterestSaved = totalInterestPaidOriginal – totalInterestPaidWithExtra;
var totalPaidWithExtra = loanAmount + totalInterestPaidWithExtra;
totalInterestSavedDisplay.textContent = "$" + totalInterestSaved.toFixed(2);
newPayoffTimeDisplay.textContent = newLoanTermMonths + " months";
originalPayoffTimeDisplay.textContent = originalTotalMonthsToPay + " months";
totalPaidWithExtraDisplay.textContent = "$" + totalPaidWithExtra.toFixed(2);
resultContainer.style.display = "block";
}