Why extra payments save interest
Interest on an amortizing loan is charged on the remaining balance. When an extra payment goes to principal, the balance drops faster, so every following month accrues a little less interest. Those savings compound over the remaining term.
| Extra each month | Payoff time | Total interest |
|---|---|---|
| $0 | 15 years | $36,009 |
| $100 | 10 years, 10 months | $24,796 |
| $200 | 8 years, 6 months | $19,044 |
Before you pay extra
- Check for prepayment terms. Review your loan agreement or ask your lender whether there is any prepayment penalty.
- Make sure it goes to principal. Some servicers apply extra money to the next payment instead. Ask how to designate it as a principal payment.
- Keep a cushion. Extra payments reduce flexibility. Keeping an emergency reserve may matter more than paying off the boat early.
Other ways to prepay
A single lump sum (for example, from a bonus or tax refund) also reduces interest, especially early in the loan. Rounding up the monthly payment is another simple approach. You can test any steady extra amount with the calculator above.
Frequently asked questions
Usually not. On most fixed-rate installment loans the scheduled payment stays the same; the loan is simply paid off sooner. Some lenders offer to recalculate the payment after a large prepayment — ask yours.
Yes. Enter your current balance, your rate and the years remaining. The results will be close to your actual loan if the remaining term matches your statement.
The effect can be similar, but a longer term with voluntary extra payments keeps the required payment lower, while a shorter term commits you to the higher payment. Compare both with the Loan Term Calculator.
