Extra Payment Saving
What paying a little extra each month saves in time and interest.
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Formula
How the calculation works
Paying extra does not shorten a loan in proportion to the extra paid. On 15,000 at 9%, adding 100 to a payment of 311.38 clears it in 43 months instead of 60 and saves 1,093 of interest, for only about a third more per month.
The reason is that money paid early removes interest which would itself have earned interest for the rest of the term. The first extra units therefore save more than the last, so the benefit is largest at the start of a loan and shrinks as the term runs out. The same 100 paid in the final year saves almost nothing.
This is simulated month by month rather than solved in closed form, because the final payment is usually partial. A formula gives the number of months but not the total actually paid, and the saving depends on that total.
Common mistakes
- Assuming the saving is proportional to the extra paid. Doubling the extra does not double the saving.
- Planning extra payments for late in the term, when they save the least.
- Forgetting that some loans carry an early-repayment charge, which can exceed the interest saved.
When to use it
- Use it before choosing a term, to see how much a small monthly increase buys, and whether extra payments are worth prioritising over saving elsewhere.
- It models extra payments on one loan. If the same money could clear a dearer debt first, that comparison needs both debts side by side.
Worked example
On 15,000 at 9% over five years, 100 extra a month clears it in 43 months instead of 60 and saves 1,093.
Common questions
Does paying extra at the end save the same?
No, far more is saved early. Money paid early removes interest that would itself have compounded for the rest of the term.
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