The power of extra payments
Every extra dollar you pay toward principal stops earning interest for the lender for the rest of the loan. That's why small extra payments early in a loan have an outsized effect on the total cost and the payoff date.
Example: a car or personal loan
A $20,000 loan at 7% over five years has a monthly payment of about $396 and total interest of roughly $3,760. Adding $100 a month pays it off about 14 months early and saves around $900 in interest. Check your own loan in our loan payment calculator, then experiment with a higher payment.
Biweekly payments
Paying half your monthly payment every two weeks results in 26 half-payments, which equals 13 full payments a year instead of 12. That one extra payment a year can shorten a 30-year mortgage by several years. Make sure your lender applies the money immediately and that there's no fee for the service.
Avalanche vs. snowball
If you've several debts, the avalanche method puts all extra money toward the highest interest rate first, which minimizes total interest. The snowball method pays the smallest balance first for quick psychological wins. Avalanche is mathematically better; snowball works well for people who need motivation. Either is far better than paying only minimums.
Tell the lender to apply it to principal
When you send an extra payment, specify that it should go to principal, not future interest. Check your statement afterwards. Also look for prepayment penalties in your contract; most car loans and personal loans in the US don't have them, but some do.
Find the money
Round your payment up to the next $50, put windfalls such as tax refunds and bonuses toward the debt, and redirect any subscription you cancel. Use our savings goal calculator if you prefer to build a lump sum first.
When not to rush
If your loan rate is very low and you've no emergency fund, build savings first. High-interest credit card debt should always be paid before low-rate loans.
Frequently asked questions
Do extra loan payments really save money?
Yes. Extra principal payments reduce the balance that accrues interest, lowering total cost and the payoff time.
How much does $100 extra per month save on a $20,000 loan?
At 7% over five years, roughly $900 in interest and about 14 months.
What is the avalanche method?
Paying extra on the highest-interest debt first while making minimum payments on the rest.
Are biweekly payments worth it?
They create one extra monthly payment per year, which can shorten a loan noticeably.