Please enter your loan details to see your potential savings.
Understanding Your Personal Loan Early Payoff Savings
Paying off a personal loan early can be a smart financial move, potentially saving you a significant amount of money on interest charges and freeing up your cash flow sooner. This calculator helps you visualize these savings by factoring in your original loan details and any extra payments you plan to make.
How the Calculator Works: The Math Behind Early Payoff
The calculator estimates your savings by comparing two scenarios:
Continuing to pay the loan as originally scheduled.
Paying off the loan with the addition of your extra monthly payments.
The core of the calculation involves determining your original monthly payment and then simulating the loan amortization (how the principal and interest are paid down over time) for both scenarios.
1. Calculating the Original Monthly Payment (M):
This is typically calculated using the loan amortization formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
n = Total Number of Payments (Loan Term in Months – loanTermMonths)
2. Calculating Remaining Balance After `monthsPaid`:
We first determine the balance remaining on the loan after the number of months you've already paid. This requires calculating the principal paid over those months and subtracting it from the original principal. A more direct way is to use the remaining balance formula:
Remaining Balance = P(1 + i)^k - M [ ((1 + i)^k - 1) / i ]
Where:
P = Original Loan Amount
i = Monthly Interest Rate
k = Number of months payments have been made (monthsPaid)
M = Original Monthly Payment
3. Calculating Total Interest Paid (Original Schedule):
Total Interest = (Original Monthly Payment * Original Loan Term) – Original Loan Amount
4. Simulating Early Payoff:
The calculator then simulates the payoff with the extraPayment. The new effective monthly payment becomes Original Monthly Payment + extraPayment. The calculator determines how many months it will take to pay off the Remaining Balance with this new, higher payment. It calculates the total interest paid in this accelerated scenario.
5. Determining Savings:
The savings are calculated as:
Savings = Total Interest Paid (Original Schedule) - Total Interest Paid (Early Payoff)
When is Early Payoff Beneficial?
Early payoff is generally beneficial when:
High Interest Rates: The higher the annual interest rate, the more interest you accrue, and the more you'll save by paying it off sooner.
Significant Extra Payments: Even a modest extra payment each month can substantially shorten your loan term and reduce interest costs.
Short to Medium Term Loans: While possible with longer terms, the impact is often more dramatic on loans with fewer years remaining.
Before making significant extra payments, ensure you have an emergency fund and that your loan doesn't have any prepayment penalties. Always confirm with your lender how extra payments are applied (e.g., directly to principal).
function calculateEarlyPayoff() {
var loanAmount = parseFloat(document.getElementById('loanAmount').value);
var annualInterestRate = parseFloat(document.getElementById('annualInterestRate').value);
var loanTermMonths = parseInt(document.getElementById('loanTermMonths').value);
var monthsPaid = parseInt(document.getElementById('monthsPaid').value);
var extraPayment = parseFloat(document.getElementById('extraPayment').value);
var resultDiv = document.getElementById('result');
resultDiv.innerHTML = 'Please enter your loan details to see your potential savings.';
if (isNaN(loanAmount) || isNaN(annualInterestRate) || isNaN(loanTermMonths) || isNaN(monthsPaid) || isNaN(extraPayment) ||
loanAmount <= 0 || annualInterestRate < 0 || loanTermMonths <= 0 || monthsPaid < 0 || extraPayment = loanTermMonths) {
resultDiv.innerHTML = 'Please enter valid positive numbers for all fields. Ensure months paid is less than the total loan term.';
return;
}
var monthlyInterestRate = annualInterestRate / 100 / 12;
var originalMonthlyPayment;
// Calculate Original Monthly Payment
if (monthlyInterestRate > 0) {
originalMonthlyPayment = loanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, loanTermMonths)) / (Math.pow(1 + monthlyInterestRate, loanTermMonths) – 1);
} else {
originalMonthlyPayment = loanAmount / loanTermMonths;
}
// Calculate Remaining Balance after monthsPaid
var remainingBalance = 0;
if (monthlyInterestRate > 0) {
// Balance formula: B = P(1+i)^k – M[((1+i)^k – 1)/i]
remainingBalance = loanAmount * Math.pow(1 + monthlyInterestRate, monthsPaid) – originalMonthlyPayment * ((Math.pow(1 + monthlyInterestRate, monthsPaid) – 1) / monthlyInterestRate);
} else {
remainingBalance = loanAmount – (originalMonthlyPayment * monthsPaid);
}
// Ensure remaining balance is not negative due to floating point errors
remainingBalance = Math.max(0, remainingBalance);
// Calculate Total Interest Paid (Original Schedule)
var totalInterestOriginal = (originalMonthlyPayment * loanTermMonths) – loanAmount;
// Simulate Early Payoff
var newMonthlyPayment = originalMonthlyPayment + extraPayment;
var remainingMonthsEarlyPayoff = 0;
var totalInterestEarlyPayoff = 0;
var tempBalance = remainingBalance;
if (newMonthlyPayment > 0) {
if (monthlyInterestRate > 0) {
// Using formula for number of periods n = -log(1 – (B*i)/PMT) / log(1+i)
// Where B is remaining balance, i is monthly rate, PMT is new monthly payment
if (newMonthlyPayment > tempBalance * monthlyInterestRate) { // Ensure payment covers interest
remainingMonthsEarlyPayoff = -Math.log(1 – (tempBalance * monthlyInterestRate) / newMonthlyPayment) / Math.log(1 + monthlyInterestRate);
} else {
// Payment doesn't even cover interest, this scenario is not possible for payoff
remainingMonthsEarlyPayoff = Infinity; // Indicate it won't be paid off
}
} else {
remainingMonthsEarlyPayoff = tempBalance / newMonthlyPayment;
}
// Calculate total interest paid in early payoff scenario
// Total paid = newMonthlyPayment * remainingMonthsEarlyPayoff
// Total principal paid = remainingBalance
// Total interest = Total paid – Total principal paid
if (isFinite(remainingMonthsEarlyPayoff)) {
totalInterestEarlyPayoff = (newMonthlyPayment * remainingMonthsEarlyPayoff) – remainingBalance;
} else {
totalInterestEarlyPayoff = Infinity; // Cannot be paid off
}
} else {
totalInterestEarlyPayoff = Infinity; // No payment made, cannot be paid off
}
// Ensure calculated interest is not negative
totalInterestEarlyPayoff = Math.max(0, totalInterestEarlyPayoff);
totalInterestOriginal = Math.max(0, totalInterestOriginal);
var savings = totalInterestOriginal – totalInterestEarlyPayoff;
if (isFinite(savings)) {
resultDiv.innerHTML = '$' + savings.toFixed(2) + ' Potential Interest Savings';
} else {
resultDiv.innerHTML = 'Could not calculate savings. Ensure payment is sufficient.';
}
}