A personal loan is a versatile financial tool that can be used for various purposes, such as debt consolidation, home improvements, unexpected medical expenses, or significant purchases. Unlike mortgages or auto loans, personal loans are typically unsecured, meaning they don't require collateral. They come with a fixed interest rate and a set repayment term, making budgeting straightforward.
While the fixed monthly payments of a personal loan offer predictability, making only the minimum payment means you'll be paying interest over the entire loan term. This is where the power of extra payments comes into play. By strategically paying more than your scheduled monthly installment, you can significantly reduce the total interest paid and shorten the time it takes to become debt-free.
How the Personal Loan Extra Payment Calculator Works
Our calculator helps you visualize the impact of making additional payments on your personal loan. Here's the math behind it:
Calculate Original Monthly Payment:
The calculator first determines your original monthly loan payment using the standard loan payment formula:
$M = P \frac{r(1+r)^n}{(1+r)^n – 1)}$
Where:
$n$ = Total Number of Payments (Loan Term in Years * 12)
Calculate Total Interest Paid (Original):
This is calculated as:
Total Interest = (Monthly Payment * Total Number of Payments) – Principal Loan Amount
Calculate New Loan Term with Extra Payments:
When you make an extra monthly payment, the additional amount goes directly towards reducing the principal balance. This, in turn, reduces the amount of interest accrued in subsequent periods and shortens the loan term. The calculator iteratively simulates the loan amortization month by month with the added extra payment to determine the new payoff date and total interest paid.
The formula for the number of periods ($n$) can be derived when the monthly payment includes the extra amount:
$n = -\frac{\log(1 – \frac{P_{new} \times r}{M_{new}})}{\log(1+r)}$
Where:
$P_{new}$ = Principal Loan Amount
$r$ = Monthly Interest Rate
$M_{new}$ = Original Monthly Payment + Extra Monthly Payment
The result of this formula gives the total number of months to repay. This is then converted back into years and months.
Calculate Total Interest Saved:
This is the difference between the total interest paid on the original loan term and the total interest paid with the extra payments.
Total Interest Saved = Total Interest (Original) – Total Interest (With Extra Payments)
Calculate Total Amount Paid:
This is the sum of the original loan amount and the total interest paid with the extra payments.
Benefits of Making Extra Payments
Save Money on Interest: The most significant benefit is reducing the amount of interest you pay over the life of the loan. Even small extra payments can add up to substantial savings.
Become Debt-Free Faster: Shortening your loan term means you'll be free from debt sooner, improving your financial flexibility and reducing stress.
Improve Debt-to-Income Ratio: Paying off loans faster can positively impact your debt-to-income ratio, which is crucial for future borrowing, such as mortgages.
Build Positive Credit History: Consistent on-time payments and faster debt reduction contribute to a stronger credit score.
When to Use This Calculator
This calculator is ideal for anyone who has a personal loan and wants to understand the financial advantages of paying more than the minimum. It's particularly useful if you've received a windfall (like a bonus or tax refund) or if your budget allows for slightly higher monthly contributions. It helps answer questions like: "How much interest can I save if I pay an extra $100 per month?" or "How much faster will I pay off my loan if I add an extra $50?"
function calculateLoanRepayment() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var extraPaymentMonthly = parseFloat(document.getElementById("extraPaymentMonthly").value);
var resultDiv = document.getElementById("result");
var totalInterestSavedSpan = document.getElementById("totalInterestSaved");
var newLoanTermYearsSpan = document.getElementById("newLoanTermYears");
var totalPaidSpan = document.getElementById("totalPaid");
// Clear previous results
resultDiv.classList.add("hidden");
totalInterestSavedSpan.textContent = "";
newLoanTermYearsSpan.textContent = "";
totalPaidSpan.textContent = "";
// Input validation
if (isNaN(loanAmount) || loanAmount <= 0 ||
isNaN(annualInterestRate) || annualInterestRate < 0 ||
isNaN(loanTermYears) || loanTermYears <= 0 ||
isNaN(extraPaymentMonthly) || extraPaymentMonthly 0) {
originalMonthlyPayment = loanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
} else {
originalMonthlyPayment = loanAmount / numberOfPayments;
}
// Calculate Original Total Interest Paid
var originalTotalPaid = originalMonthlyPayment * numberOfPayments;
var originalTotalInterest = originalTotalPaid – loanAmount;
// Calculate New Loan Term and Total Paid with Extra Payment
var currentBalance = loanAmount;
var totalPaymentsMade = 0;
var totalPaidWithExtra = 0;
var months = 0;
if (extraPaymentMonthly === 0) { // Handle case with no extra payment
months = numberOfPayments;
totalPaidWithExtra = originalTotalPaid;
totalInterestSavedSpan.textContent = "Total Interest Saved: $0.00";
newLoanTermYearsSpan.textContent = "Original Loan Term: " + loanTermYears + " years";
totalPaidSpan.textContent = "Total Paid: $" + originalTotalPaid.toFixed(2);
} else {
var newMonthlyPayment = originalMonthlyPayment + extraPaymentMonthly;
// Use iterative approach or formula to find new number of months
// Iterative approach is more robust for edge cases and precise simulation
while (currentBalance > 0) {
months++;
var interestForMonth = currentBalance * monthlyInterestRate;
var principalForMonth = newMonthlyPayment – interestForMonth;
// Adjust last payment if it exceeds remaining balance
if (currentBalance – principalForMonth 10000) { // Prevent infinite loops for very long terms/low payments
alert("Calculation exceeded maximum iterations. Please check your inputs.");
return;
}
}
var newTotalInterest = totalPaidWithExtra – loanAmount;
var interestSaved = originalTotalInterest – newTotalInterest;
var newLoanTermMonths = months;
var years = Math.floor(newLoanTermMonths / 12);
var remainingMonths = newLoanTermMonths % 12;
var newTermString = years > 0 ? years + " years" : "";
if (remainingMonths > 0) {
newTermString += (newTermString ? " and " : "") + remainingMonths + " months";
}
if (!newTermString) { // Case where loan is paid off in first month
newTermString = "Less than 1 month";
}
totalInterestSavedSpan.textContent = "Total Interest Saved: $" + interestSaved.toFixed(2);
newLoanTermYearsSpan.textContent = "New Loan Term: " + newTermString;
totalPaidSpan.textContent = "Total Paid: $" + totalPaidWithExtra.toFixed(2);
}
resultDiv.classList.remove("hidden");
}