Loan Overpayment Calculator: How Much an Extra Payment Really Saves

Loan Overpayment Calculator

An extra payment on a loan feels small: a couple of hundred a month against a balance in the hundreds of thousands. But it saves far more than its size suggests, because every extra payment goes straight to the balance, and a smaller balance charges less interest every month after that.

Enter your own numbers below. The calculator works in any currency.

Why overpaying saves so much

Each month, your lender first charges interest on what you still owe, and your payment covers that interest before anything reduces the debt. Early in a long loan, most of the payment is interest.

An overpayment skips that queue. It reduces the balance directly, so next month's interest is a little smaller, a little more of your regular payment goes to the balance, and so on. The effect compounds in your favour, the same way savings interest compounds.

A worked example

Take a balance of 200,000 at 6.5% a year, with a monthly payment of 1,500:

• With the regular payment only, the loan takes 238 months (just under 20 years) and costs about 155,680 in interest.
• Add 200 a month, so you pay 1,700 in total, and it's paid off in 188 months: more than 4 years sooner, with about 36,500 less interest.

That's the same loan and the same rate, with roughly 13% more each month. The calculator above uses the same month-by-month method, so you can try your own figures.

Monthly extra or a one-off lump sum?

Both work. The difference is timing:

• A lump sum today has the biggest effect per unit of money, because it stops interest from accruing on that amount for the whole remaining term.
• A regular monthly extra is easier to sustain and adds up to more over time.

If you get a bonus or a tax refund, a one-off overpayment is a strong use of it. Try both in the calculator and compare.

When not to overpay

Overpaying isn't always the best move:

1. No emergency fund yet. Money you overpay is hard to get back. Build an emergency fund first.
2. More expensive debt elsewhere. Pay off credit cards and other high-interest debt before a cheaper mortgage.
3. Early repayment fees. Some loans charge for overpaying above a limit. Check your agreement.
4. A higher return elsewhere. If your loan rate is low and you can reliably earn more on savings or investments after tax, overpaying may not win. It's a trade-off between a guaranteed saving and an expected return.

Make it part of the budget

An overpayment that happens "when there's money left over" rarely happens. Treat it like any other bill: give it its own envelope with a fixed monthly amount, so it gets paid before the money drifts elsewhere.

In FamilyJar you can add a loan with its rate and payment, record overpayments as you make them, and see the projected payoff date move as the balance falls. There's no bank login involved. If you're tackling several debts at once, start with our guide to getting out of family debt.

Frequently Asked Questions

How much does an extra payment save on a loan?+

It depends on the balance, rate and remaining term. For example, on 200,000 at 6.5% with a 1,500 monthly payment, adding 200 a month pays the loan off more than 4 years sooner and saves about 36,500 in interest. Use the calculator on this page for your own numbers.

Is it better to overpay monthly or make a lump sum?+

A lump sum saves the most per unit of money because it stops interest on that amount immediately. A monthly overpayment is easier to keep up and adds up over time. Both shorten the loan.

Should I overpay my mortgage or build savings first?+

Build an emergency fund first and clear more expensive debt such as credit cards. After that, overpaying is a guaranteed saving equal to your loan's interest rate.

Does the calculator work for any currency?+

Yes. Enter amounts in your own currency; the results use the same currency.