1. What is Loan Prepayment?

Loan prepayment refers to making additional payments toward your loan principal beyond the required monthly payment. This reduces the principal faster, saving interest and potentially shortening the loan term.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of months in loan term

Prepayment Calculation: The calculator then applies your additional monthly payment directly to principal and recalculates the amortization schedule to show interest savings and term reduction.

3. Benefits of Prepayment

Details: Even small prepayments can significantly reduce total interest paid and shorten your loan term. For example, adding $100/month to a $200,000 mortgage at 4% can save ~$30,000 in interest and pay off the loan 5 years early.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, loan term in years, and any additional monthly prepayment amount. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does prepayment save money?
A: Prepayment reduces principal faster, which reduces the amount of interest charged over the life of the loan.

Q2: Are there prepayment penalties?
A: Some loans have prepayment penalties. Check your loan agreement before making extra payments.

Q3: Is it better to prepay or invest?
A: Compare your loan interest rate to potential investment returns. Paying off high-interest debt usually makes sense first.

Q4: How much can I save with prepayment?
A: Savings depend on loan amount, interest rate, term, and prepayment amount. This calculator shows exact savings.

Q5: Should I refinance instead?
A: If you can get a significantly lower interest rate, refinancing might be better than prepayment. Consider closing costs.