What the schedule shows you
Every loan payment splits in two. Part covers the interest charged since the last payment; the rest reduces what you owe. Early on the split is unflattering — on a five-year car loan the first payments can be a third interest — and it improves steadily as the balance falls.
The month-by-month table above shows that split for your loan, so you can see exactly where your money is going rather than watching a balance move slowly for reasons that are never explained.
Making extra payments count
Two things are worth confirming with your lender before you start. First, that extra money is applied to the principal immediately rather than held against next month’s instalment — the second gives you a payment holiday, not a shorter loan. Second, that there is no prepayment penalty.
Both are usually a single phone call, and both decide whether the savings in the table above are real for you.
Common questions
- How do I work out when my loan will be paid off?
- Enter the balance remaining, the interest rate, and your monthly payment. The calculator applies interest and then your payment each month until the balance reaches zero, and gives you the exact month.
- Does paying extra on a loan actually shorten it?
- Yes, provided the extra goes to the principal. Each extra dollar removes future interest as well, so the effect compounds. The table above shows the exact months and dollars saved at several extra amounts.
- What is a prepayment penalty?
- A fee some lenders charge for paying off a loan early, most often on mortgages and older personal loans. Check your agreement before making large extra payments — where one exists it is usually limited to the first few years.
- Why is my early payment mostly interest?
- Interest is charged on what you still owe, and early on that is nearly the whole loan. As the balance falls the interest portion shrinks and more of the same payment goes to principal. The schedule above shows this split for every month.