See how much faster you pay off your loan and how much interest you save with extra payments.
The Power of Extra Payments
Even small extra payments can save you thousands in interest and years of payments. Extra payments go directly toward your principal, reducing the balance that accrues interest.
Strategies for Extra Payments
Round up: If your payment is $478, pay $500 — the extra $22/month adds up
Biweekly payments: Pay half your monthly amount every 2 weeks — you end up making 13 monthly payments per year instead of 12
Windfalls: Apply tax refunds, bonuses, or gifts directly to your loan principal
Snowball: When one debt is paid off, apply that payment to the next debt
Frequently Asked Questions
Some loans have prepayment penalties, especially mortgages from certain lenders. Check your loan agreement. Federal student loans and most personal loans have no prepayment penalty. If there is a penalty, calculate whether the interest savings still exceed it.
Compare your loan's interest rate to your expected investment return. If your loan is 4% and you expect 8% returns, investing may be better mathematically. But paying off debt provides a guaranteed, risk-free return equal to your interest rate. Many people prefer the certainty and psychological benefit of being debt-free.
Extra payments should go to principal, which reduces the balance that accrues interest. Most lenders apply extra amounts to principal automatically, but verify with your servicer. Some may try to apply it to future payments instead — specify 'apply to principal' when paying extra.