Loan Payoff Calculator
See how to pay off your loan faster
How to Use This Calculator
This loan payoff calculator helps you visualize how extra payments can dramatically reduce your debt timeline and save thousands in interest. Getting started is simple and takes just a few moments.
Step 1: Enter your current loan balance. This is the remaining principal amount you owe on your loan. You can find this figure on your most recent loan statement, through your lender's online portal, or by calling your lender directly. Make sure to use the current payoff balance, not the original loan amount.
Step 2: Input your annual interest rate (APR). The APR represents the yearly cost of borrowing, expressed as a percentage. This rate determines how much interest accrues on your remaining balance each month. Your APR is listed on your loan documents and monthly statements.
Step 3: Enter your current monthly payment. This is the amount you pay each month toward your loan, whether it is the minimum required payment or a higher amount you have chosen to pay.
Step 4: Add an optional extra payment amount. This is where the magic happens. Enter any additional amount you could contribute monthly beyond your regular payment. The calculator will show you exactly how much time and money this extra payment would save. Try different amounts to find the sweet spot that fits your budget while maximizing your savings.
Understanding Loan Payoff Strategies
Strategically paying off debt requires understanding how different approaches affect your financial outcome. The key principle behind accelerated loan payoff is simple: every extra dollar you pay goes directly toward reducing your principal balance, which means you pay less interest over time.
How Extra Payments Reduce Interest
When you make only minimum payments, a significant portion goes toward interest charges rather than reducing your actual debt. Extra payments bypass this interest allocation entirely, attacking your principal directly. This creates a compounding benefit because next month's interest is calculated on a lower balance. Over time, this snowball effect can save tens of thousands of dollars on mortgages and thousands on smaller loans.
Avalanche vs. Snowball Method
The debt avalanche method targets your highest-interest debt first while making minimum payments on other debts. Once the highest-rate debt is eliminated, you redirect those payments to the next highest rate. This approach is mathematically optimal and minimizes total interest paid. The debt snowball method takes a different approach by targeting the smallest balance first, regardless of interest rate. While you pay more in total interest, the psychological wins from quickly eliminating debts keep many people motivated. Research from Northwestern University suggests that people using the snowball method are more likely to successfully eliminate their debt, despite the higher cost.
Biweekly Payments
Instead of making one monthly payment, you can split your payment in half and pay every two weeks. Since there are 52 weeks in a year, this results in 26 half-payments, equivalent to 13 full monthly payments instead of 12. This one extra payment per year can shave years off a mortgage without requiring a larger monthly budget. Some lenders offer biweekly payment programs, or you can set up automatic transfers yourself.
Lump Sum Payments
Applying windfalls like tax refunds, work bonuses, or inheritance money directly to your loan principal can dramatically accelerate payoff. A single $5,000 lump sum payment early in a 30-year mortgage can save over $15,000 in interest over the life of the loan. The earlier you make lump sum payments, the greater the impact due to compound interest working in your favor.
Prepayment Penalties
Before implementing any aggressive payoff strategy, check whether your loan has prepayment penalties. These fees penalize borrowers for paying off loans early, as lenders lose expected interest income. Prepayment penalties are more common in older mortgages and some personal loans. Federal student loans and most modern mortgages do not have prepayment penalties. Always review your loan agreement or contact your lender to confirm before making extra payments.
Frequently Asked Questions
How much interest can I save by making extra payments?
The interest savings depend on three factors: your remaining balance, interest rate, and extra payment amount. Higher interest rates yield greater savings. For example, adding $200 monthly to a $250,000 mortgage at 6.5% saves approximately $98,000 in interest and eliminates nearly 7 years of payments. On a $10,000 credit card balance at 20% APR, an extra $150 monthly saves over $3,000 in interest and pays off the debt 3 years faster.
Should I pay off my mortgage early or invest the money instead?
This decision depends on your mortgage interest rate versus expected investment returns. If your mortgage rate exceeds 6-7%, paying it off provides a guaranteed, risk-free return equal to that rate. For lower rates (3-4%), investing in diversified index funds historically yields better long-term returns. However, paying off a mortgage provides peace of mind, reduces monthly obligations, and protects against market volatility. Many financial advisors recommend a balanced approach: maximize employer 401(k) matching first, then split extra money between debt payoff and investments.
What is the difference between the avalanche and snowball methods?
The avalanche method prioritizes debts by interest rate (highest first), mathematically minimizing total interest paid. The snowball method prioritizes debts by balance (smallest first), providing quick psychological wins. A person with $5,000 in credit card debt at 22% and $15,000 in student loans at 6% would tackle the credit card first using either method. But with a $2,000 medical bill at 0% and $8,000 credit card at 18%, the snowball method would target the medical bill first for a quick win, while the avalanche method would attack the credit card to save more money overall.
What are the benefits of biweekly payments?
Biweekly payments offer three key benefits. First, you make the equivalent of one extra monthly payment per year without budgeting for it separately. Second, more frequent payments reduce your average daily balance, slightly lowering interest charges. Third, biweekly payments align with many people's pay schedules, making budgeting easier. On a 30-year mortgage, biweekly payments typically reduce the loan term by 4-6 years.
How do prepayment penalties work?
Prepayment penalties are fees charged when you pay off a loan earlier than scheduled. They compensate lenders for lost interest income. Penalties typically range from 1-5% of the remaining balance or a certain number of months' interest. They are most common in subprime mortgages, some auto loans, and personal loans from certain lenders. Federal law prohibits prepayment penalties on qualified mortgages issued after 2014, and federal student loans never have prepayment penalties.
Which debt should I prioritize paying off first?
Prioritize debts in this order: First, any debt in collections or at risk of legal action. Second, high-interest debt like credit cards (typically 15-25% APR). Third, auto loans and personal loans (6-15% APR). Fourth, student loans (4-8% APR). Finally, mortgages (typically the lowest rate). However, always make minimum payments on all debts to protect your credit score. If you struggle with motivation, the snowball method's quick wins may be worth the extra interest cost.
Should I refinance or just make extra payments?
Refinancing makes sense when you can reduce your interest rate by at least 0.5-1% and plan to stay in the loan long enough to recoup closing costs. A typical mortgage refinance costs $3,000-$6,000 in fees. Calculate your break-even point by dividing closing costs by monthly savings. If you plan to pay off the loan aggressively anyway, extra payments on your current loan may be simpler and achieve similar results without the fees and paperwork of refinancing.
What is the minimum extra payment that makes a difference?
Every extra dollar counts, but the impact becomes more noticeable at certain thresholds. For credit cards, even $25-50 extra monthly creates meaningful acceleration. For auto loans, $50-100 extra shows significant results. For mortgages, $100-200 extra monthly provides substantial savings. The key is consistency. A $50 monthly extra payment maintained for 5 years beats a single $500 payment because of the compounding effect of continuously reducing your principal.
Loan Payoff Examples
Mortgage with $200/Month Extra
Sarah has a $300,000 mortgage at 6.5% with a 30-year term. Her monthly payment is $1,896. By adding $200 extra each month, she reduces her payoff time from 30 years to approximately 22 years and 6 months. Total interest without extra payments: $382,633. Total interest with extra payments: $256,847. Her savings: $125,786 in interest and 7.5 years of payments eliminated.
Student Loans Using Snowball Method
Michael has three student loans: $3,500 at 5.5%, $8,000 at 6.8%, and $15,000 at 7.2%. Using the snowball method, he attacks the $3,500 loan first with an extra $200 monthly while making minimums on the others. After paying off the smallest loan in 14 months, he rolls that entire payment into the $8,000 loan, eliminating it in another 18 months. Finally, he tackles the $15,000 loan with the combined payments, becoming debt-free in under 4 years instead of 10.
Car Loan Early Payoff
Jennifer financed a $28,000 car at 5.9% for 60 months with a $540 monthly payment. By rounding up to $600 per month, an extra $60, she pays off the car in 51 months instead of 60. She saves $870 in interest and gains 9 months of payment-free driving. The modest extra payment required no major lifestyle changes but freed up $540 monthly almost a year early.
Debt Payoff Tips
Automate extra payments. Set up automatic transfers to coincide with your paycheck. According to the Consumer Financial Protection Bureau (CFPB), automation removes the temptation to spend extra money elsewhere and ensures consistent progress toward your debt-free goal. Even small automated payments of $25-50 per paycheck add up significantly over time.
Use windfalls wisely. The Federal Reserve notes that Americans who apply at least 50% of unexpected money, such as tax refunds, bonuses, or gifts, toward debt payoff reach their financial goals faster than those who spend windfalls entirely. Consider splitting windfalls between debt payoff and a small reward to stay motivated without derailing progress.
Balance payoff with emergency savings. Financial experts recommend maintaining at least $1,000 in emergency savings while aggressively paying debt. Without an emergency fund, unexpected expenses force you back into debt, erasing progress. Once you have a basic emergency fund, split extra money between debt payoff and building 3-6 months of expenses in savings. This balanced approach protects your progress and reduces financial stress.
Track your progress visually. Create a debt payoff chart or use an app to visualize your declining balances. Seeing progress motivates continued effort and celebrates milestones along the way to becoming debt-free.
The Loan Payoff Calculation
The calculator determines payoff time by simulating your payments month by month:
Interest charge = Balance × (Annual rate ÷ 12)
Principal paid = Payment - Interest charge
New balance = Balance - Principal paid
Continue until balance = 0
Total interest = Sum of all monthly interest charges
When you add extra payments, the additional amount goes entirely toward principal, reducing the balance faster and decreasing future interest charges. This is why extra payments have a compounding effect on savings.
Did you know?
- Paying an extra $100 monthly on a $200,000 mortgage at 7% saves over $50,000 in interest and cuts 5+ years off the loan.
- The average American household with debt spends over $1,000 per year on interest payments alone.
- Paying biweekly instead of monthly results in 13 yearly payments instead of 12, significantly accelerating payoff.
- On a 30-year mortgage, you pay more in interest during the first few years than you pay toward the actual home purchase.
- Becoming debt-free is the number one financial goal for Americans, ahead of saving for retirement.