Compare the required payment with the extra-payment scenario. The result assumes the lender applies extra money directly to principal and charges no prepayment penalty.
Required payment versus extra payment
The required payment amortizes the balance over the selected term. Each payment first covers accrued interest and then reduces principal.
An extra payment can reduce principal sooner. That may shorten the loan and reduce future interest, provided the lender applies it to principal rather than treating it as an early scheduled payment.
- Check the lender's payment-allocation policy.
- Confirm whether a prepayment penalty applies.
- Keep upfront fees separate when comparing offers.
How to compare loan offers
Compare the same amount and term across offers. Look at the interest rate, APR, upfront fees, total repayment, and whether the rate can change.
A low monthly payment may result from a longer term rather than a lower borrowing cost. Review both monthly affordability and total interest.
Important limits
This tool models a fixed-rate, fully amortizing loan with monthly payments. It does not model variable rates, balloon payments, interest-only periods, late fees, skipped payments, or daily simple-interest timing.
The result is educational and does not determine credit eligibility or reproduce a lender's official disclosure.
The formula used
Payment = P × [i(1 + i)^n] ÷ [(1 + i)^n − 1]P is principal, i is the monthly interest rate, and n is the number of payments. The extra-payment result recalculates interest from the remaining balance month by month.
Example: adding $100 each month
For a $25,000 five-year loan at 7.5%, the required payment is about $501 per month. Adding $100 each month shortens the modeled payoff period and reduces interest because principal falls faster. The exact savings depend on when the lender credits each payment.
Sources and further reading
We use primary educational sources to check terminology and explain how the calculation fits into real financial decisions.
Consumer Financial Protection Bureau — What is an interest rate?↗Consumer Financial Protection Bureau — What is APR?↗