Frequently asked questions
How do extra payments reduce interest so much?
Extra payments go entirely toward principal, which immediately reduces the balance that interest is calculated on. Every dollar of principal paid early saves interest for every remaining month of the loan. The earlier you start, the bigger the cumulative effect.
Is there a penalty for paying extra?
Most modern loans allow extra payments without penalty, but some mortgages and personal loans have prepayment penalties, especially in the first few years. Check your loan agreement. If there's a penalty, calculate whether the interest savings exceed it.
Should I pay extra on my loan or invest the money?
Compare the loan's interest rate to your expected after-tax investment return. Paying off a 7% loan is equivalent to a guaranteed 7% return. If you can reliably earn more after tax, investing may win mathematically — but the guaranteed debt reduction is risk-free.
Is biweekly payment the same as paying extra?
Not quite, but close. Biweekly means 26 half-payments per year (13 full payments) versus 12 monthly. That extra payment per year acts like a ~8% monthly extra on a typical mortgage and can cut 4–6 years off a 30-year term.
What's a good extra payment amount to target?
Any amount helps, but rounding up to the nearest $100 is a common strategy. For mortgages, an extra 10–20% of the base payment is impactful. Run different amounts in the calculator to find the sweet spot your budget allows.