Quick answer: A 20,000 debt at 12% paid at 500 a month takes 52 months and 5,669.33 in interest; adding 200 a month clears it in 34 months with 3,671.15 interest, saving 1,998.18.
How it's calculated
Each month the debt grows by balance × annual rate ÷ 12, and your payment is taken off. Because every extra amount goes straight to the balance, it reduces the interest charged in every following month.
The calculator runs the schedule twice, with and without the extra payment, and compares the number of months and the total interest.
The same maths applies to Islamic finance on a reducing profit rate, but check first: some loans and Murabaha contracts charge an early settlement fee or do not reduce profit for extra payments. For several debts, see avalanche vs snowball.
Worked examples
- 20,000 at 12%, 500 a month + 200 extra: 34 months instead of 52, interest saved 1,998.18
- Same debt, 100 extra: 41 months, interest 4,449.91
Frequently asked questions
Is it better to pay extra or save the money?
Paying extra earns you the loan's rate, risk-free. If the debt charges more than you could safely earn on savings, paying it down usually comes out ahead; keep an emergency fund first.
Will my lender apply the extra to the balance?
Ask the lender to apply extra payments to the principal, not to future instalments; otherwise you may not save interest.
What about a one-off lump sum?
A lump sum works the same way. For a home loan, the mortgage payoff calculator includes one.
How much difference does a small extra payment make?
Often more than you'd expect. In the worked example, 200 extra a month cuts 52 months to 34 and saves about 2,000 in interest.
Which debt should I pay first?
Usually the one with the highest rate, once you have paid every minimum. It saves the most money.
What if I have several debts?
Use the credit cards payoff calculator, which plans several balances together, or the debt consolidation calculator to compare one new loan.