Loan Payoff Calculator

About Loan Payoff Calculator

Calculate loan payoff timeline with extra payments. This calculator provides instant results with step-by-step explanations to help you understand the calculation process.

Formula

How to use this calculator

1. Enter the current loan balance, the annual interest rate, and your regular monthly payment.
2. Add any extra monthly payment you plan to make, if applicable.
3. Choose the payment frequency and check whether the loan uses simple monthly compounding.
4. Review the estimated number of months left, the payoff date, and the total interest paid.
5. Compare the result with and without extra payments to see the savings.

The formula explained

For a fixed-rate loan, the remaining balance after each month is updated by adding interest and subtracting the payment. The calculator uses this month-by-month process to estimate how many payments are needed until the balance reaches \(0\).

• B = current loan balance
• r = annual interest rate as a decimal
• i = monthly interest rate, found by \(i = \frac{r}{12}\)
• P = regular monthly payment
• E = extra monthly payment
• N = number of months needed to pay off the loan

Step by step method

1. Find the monthly interest rate with \(i = \frac{r}{12}\).
2. For each month, compute the interest on the current balance, then add it to the balance.
3. Subtract the total payment \(P + E\) from the new balance and repeat until the balance reaches \(0\).

Worked example

Problem. You owe \(\$5,000\) on a loan at \(8\%\) annual interest. Your regular monthly payment is \(\$160\), and you want to add \(\$40\) extra each month. How long will it take to pay off the loan?

1. Compute the monthly rate, \(i = \frac{0.08}{12} \approx 0.006667\).
2. Start with \(\$5,000\). After one month, interest is \(5,000 \times 0.006667 \approx \$33.33\), so the new balance is \(5,033.33\). Subtract the total payment \(160 + 40 = 200\), leaving \(4,833.33\).
3. Repeating this process month by month gives a payoff time of about \(28\) months, or a little over \(2\) years.

Tips and common mistakes

• Always include all extra payments in the same time period as the regular payment, or the payoff estimate will be off.
• If the final payment is larger than the usual payment, that is normal, because the last balance may be smaller than one full installment.

Frequently asked questions