Early Loan Payoff Calculator

Use the early loan payoff calculator to estimate how much you can shorten your loan’s repayment period by making additional payments and how much interest you can save as a result. Our tool is universal, so you can use it as an auto loan early payoff calculator, a mortgage loan early payoff calculator, a student loan early payoff calculator, or for any other type of loan. The principle is the same regardless of the loan type.

If you prefer a more specialized tool, try our auto loan calculator or mortgage payoff calculator.

Explore the article below to learn more about the early loan payoff mechanism, why it is better to pay off a car loan early, or how to calculate early loan payoff by hand.

To estimate early loan payoff benefits, enter information about your current loan and how you plan to repay it. Follow these steps:

1. Enter your loan information into the early loan payoff calculator:

   • Loan balance — how much you still owe;
   • Use decreasing monthly payments — select this option if you repay a fixed amount of principal with each payment;
   • Loan term — how many years or months remain on the loan;
   • Interest rate; and
   • Compound frequency.

2. Choose whether you want to make a balloon payment. With this option, you continue making your regular monthly payments and then pay off the remaining balance in a single lump sum at a specified time. This option isn’t available for loans with decreasing monthly payments in this early loan payoff calculator.

3. Enter your additional payment details. Depending on your choice above, enter the amount of your extra monthly payment or specify when you want to make the balloon payment.

4. Check the results at the bottom of the calculator to see how your repayment strategy affects the loan term and total interest paid.

To estimate early loan payoff savings, compare the total amount you would pay under your current monthly repayments with the total amount you would pay after making additional payments. In the following sections, we’ll show you how to calculate your savings for different early loan payoff strategies. For simplicity, we’ll assume a monthly compounding frequency throughout.

After reading this article, you should be able to answer questions such as is it better to pay off a car loan early and determine which repayment strategy works best for you. You can also check the loan repayment calculator for more details related to early loan repayments.

The fixed monthly payments are the most popular type of loan. Let’s investigate a few useful formulas using an example of an auto loan early payoff calculation. Suppose you took out a $\$10,\!000$ loan ($\rm LA$) with $7.5\% \ \mathrm{interest \ rate}$ for 5 years to buy a car.

You can find your monthly payment $M$ using the following formula:

where:

• $R$ — Monthly interest rate. This is the annual interest rate divided by 12. For this example, $R = \frac{7.5 \%}{12} = 0.625 \%$.
• $T$ — Term, which is the number of months in the example; $T = 5 \times 12 = 60 \ \mathrm{mo}$.

Plugging this value into the equation above shows that $M ≈ \$200$. The total loan payment $P$ is simply the product of the monthly payment and the term: $P = M \times T ≈ \$12,\!000$. That’s about $2,000 more to pay than you borrowed.

Let’s see if the situation changes if you decide to increase the monthly repayment by $X = \$100$, which will go directly to pay off the principal. In this scenario, you will repay your loan earlier. But by how much? You need to use the equation derived from the formula for $M$:

where $T_{\mathrm{new}}$ is the new term. For this example, this is $T_{\mathrm{new}} ≈ 38 \ \mathrm{mo}$, i.e., 3 years and 2 months (the loan is repaid in the 38th month). The new loan repayment $P_{\mathrm{new}}$ is therefore:

A simple arithmetic gives $P_{\mathrm{new}} ≈ \$11,\!400$. See? You will eventually pay around $600 less by repaying the loan earlier. This is exactly what this early loan payoff calculator helps you reveal.

Decreasing monthly payments, also known as equal principal payments, are another repayment method offered by lenders in some countries. With this approach, each payment covers the same amount of principal, while the interest portion decreases over time.

As a result, you start with higher monthly payments, as they include the fixed principal amount plus interest. As you pay down the loan balance, interest charges decrease, so your monthly payments gradually decrease.

As before, let’s have a practical example of the home loan early payoff calculator. You have a loan with a balance of $\mathrm{LA} = \$400,\!000$ with $5\% \ \mathrm{interest \ rate}$ and $20 \ \mathrm{years}$ remaining, which you used to buy your dream home, so $R = \frac{5\%}{12} ≈ 0.42 \%$ and $T = 240 \ \mathrm{mo}$. You chose decreasing monthly payments, so the principal payment $C$ equals:

which is $C ≈ \$1,\!700$. The total loan payment $P$ is the sum of principal $LA$ and interest $I$:

In the last step, we used $C = \mathrm{LA}/ T$. Our calculator estimates $P ≈ \$600,\!000$.

Now, let’s increase the principal payment by $X = \$500$, giving $C_\mathrm{new} = \mathrm{LA}/ T + X ≈ \$2200$. The new term is approximately:

which is $T_{\mathrm{new}} ≈ 185 \ \mathrm{mo}$, i.e., 15 years and 5 months. The new total payment $P_{\mathrm{new}}$ is given my the same equation as before:

With the additional payment in our example, we obtain $P_{\mathrm{new}} ≈ \$550,\!000$, so approximately $50,000 less than without additional payments. The formula shows that savings depend on the number of months by which you shorten the loan:

Let’s explore a balloon payment — a lump sum that pays off the remaining principal at term $T_B$. For example, you have a $\mathrm{LA} = \$50,\!000$ loan for 10 years ($T = 120 \ \mathrm{mo}$) at a 6% interest rate ($R = 6\%/12 = 0.5 \%)$. Luckily, you have enough cash to pay it all back after 7 years ($T_{\mathrm{B}} = 84 \ \mathrm{mo}$).

Fixed monthly payments

First, you need to find out how much of the loan amount remains to be paid after $T_B$. Let’s figure out the formula together by calculating your balance in the first few months. The balance $B_1$ after the first month is equal to the initial loan amount $\mathrm{LA}$ plus interest $\mathrm{LA} \times R$, decreased by the monthly payment $M$ that we know from previous consideration:

The second balance $B_2$ depends on the first one:

You can show in the same way that the third balance $B_3$ is:

and using the geometric sum formula, you can get the general equation for the balance $B_{T_\mathrm{B}}$ at $T_\mathrm{B}$, i.e., the balloon payment time:

In our example, $B_{T_\mathrm{B}} ≈ \$18,\!700$. The total loan payment $P_B$ is then sum of the payments until $T_B$ and balloon payment $B$:

Eventually, you will save:

$S ≈ \$1,\!700$ for this example. Sounds good!

Decreasing monthly payments

In the case of equal principal payments, the balloon payment calculation $B$ is much simpler because there is a constant principal payment of $C = \mathrm{LA}/T$, so you just need to subtract $T_\mathrm{B}$ such payments from the loan amount:

The amount paid before the balloon payment must be calculated by summing the balloon payment $B_{T_\mathrm{B}}$, paid principal $C \times T_\mathrm{B}$, and the interest $I_{T_{\mathrm{B}}}$ paid up to $T_{\mathrm{B}}$. The formula for $I_{T_{\mathrm{B}}}$ is the same as the one we used in the previous section:

The total loan payment $P_{\mathrm{B}}$ is therefore:

Knowing the formula for the total loan payment $P$ without balloon early loan payoff from the previous section, we can find the amount we can save:

As you can see, it eventually simplifies to a one-line equation, giving $S \approx \$1,\!400$ in our example. That’s approximately $300 less than with fixed monthly payments because, with decreasing payments, you repay more principal early, which leaves a smaller balance at the time of the balloon payment and less future interest to pay.