Free tool · Loans
Loan prepayment calculator
A one-off lump sum against principal → months saved and interest avoided.
Runs in your browser · no account required · amounts use any currency unit
Applied to principal today; must be less than the balance
Results
In short
What is this?
A lump sum applied to principal removes balance that would otherwise accrue interest for the whole remaining term, so the effect is larger than the amount suggests. This assumes your lender applies it to principal immediately and you keep paying the same monthly amount, shortening the term.
Check the terms before you rely on this
This is the most important thing on the page. An overpayment does not always do what you assume, and the difference decides whether the saving is real.
- Does it reduce principal immediately, or is it held until the next due date?
- Is it applied to principal, or treated as paying the next instalment early? Only the former shortens the loan.
- Is there a prepayment charge? Some loan types carry one, and it can eliminate the benefit.
- Does it reduce the term while keeping the payment, or reduce the payment while keeping the term?
That last point catches people out. If a prepayment lowers your monthly payment instead of the term, you improved cash flow and saved far less interest than this calculator shows. Where lenders offer a choice, term reduction is usually the more valuable one.
Why earlier is worth more
Interest is charged on what you currently owe. Removing principal in year one avoids interest across the entire remaining life of the loan; the same amount in the final year avoids very little.
That is why the saving from a modest early prepayment often exceeds a much larger late one.
What it does not model
- Prepayment fees, which you should subtract from the interest saved.
- Variable rates, which change the payment or the term mid-loan.
- Bundled insurance or service plans inside your payment.
- Flat-rate loans, where interest is charged on the original amount regardless of what you repay.
FAQ
- Does an extra payment always shorten my loan?
- No. Some lenders hold overpayments until the next due date, treat them as paying an instalment early, or reduce the payment rather than the term. Ask before assuming a saving.
- Is it better to prepay early or later?
- Earlier, by a wide margin. Principal removed in year one avoids interest across the whole remaining term; the same amount in the final year avoids very little.
- Should I prepay or invest instead?
- Prepaying gives a guaranteed return equal to the rate; investing gives an uncertain one. Clear high-rate debt first, keep very low fixed-rate debt while investing, and decide the middle on your situation.
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