Start with the same loan
To compare repayment plans fairly, keep the borrowed amount, interest rate and original term unchanged. Change only the extra monthly payment. Otherwise, a difference in the result could come from a different loan rather than the extra payment.
For a 10,000 loan at a fixed 6% nominal annual rate over five years, the standard monthly principal-and-interest payment is approximately 193.33. With no additional payment, the interest over the term is approximately 1,599.68. These are mathematical examples in whichever currency you choose, not available loan offers.
What the extra payment does
Interest is calculated on the balance outstanding at the start of each monthly period. An extra payment reduces that balance sooner. The following month's interest is therefore lower, and more of the next payment can reduce principal. The final payment is usually smaller than the regular payment.
Use the loan calculator twice: first with extra payment set to zero, then with an amount you can comfortably sustain. It reports the interest saved and the number of payments removed from the schedule. Read the final balance row as well as the headline result.
Check the agreement before paying
- Confirm whether the lender applies additional money to principal immediately.
- Check for early-repayment charges and annual overpayment limits.
- Keep required insurance, taxes and account fees outside this simplified comparison.
- Keep a cash buffer for essential expenses before committing to a higher payment.
Our model uses equal monthly periods and a constant rate. Daily-interest loans, variable rates, irregular payment dates and payment holidays can produce different results. Ask the lender for a revised schedule if you need a transaction-specific answer.