Loans · Canada
Early loan payoff calculator.
See how an extra monthly amount or an annual lump sum reduces total interest and clears your loan faster. Compare your current plan to an accelerated one side by side.
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The power of extra payments
Paying off debt early is one of the highest-return moves you can make. Extra payments go directly to principal, reducing the balance faster and saving thousands in interest over the life of the loan.
Why extra payments work
Your regular payment splits between interest and principal. Early in the loan, most of it goes to interest. Extra payments reduce principal immediately, so less interest accrues in future months, which means more of each regular payment also goes to principal. The effect compounds.
Strategies for early payoff
- Bi-weekly payments: pay half your monthly payment every two weeks (26 half-payments = 13 full payments per year).
- Round up: round payments to the nearest $50 or $100.
- Windfalls: apply tax refunds, bonuses, or gifts directly to principal.
- Side income: dedicate a side hustle entirely to debt payoff.
Things to check first
- Verify no prepayment penalties in your loan agreement.
- Confirm extra payments are applied to principal, not future payments.
- Keep 3 to 6 months emergency fund before aggressive payoff.
- Consider whether investing may beat the loan rate (rare below 3%).
- Max out any employer RRSP match before extra debt payments.
Worked example: $20,000 at 8% with a $405 payment
A $20,000 loan at 8% repaid at $405 a month takes 5y 1m and costs $4,339 in interest. Adding $100 a month brings the payoff to 3y 11m and the interest to $3,300, saving $1,039.53 and finishing 1y 2m sooner.
| Extra payment | Payoff time | Total interest | Interest saved | Sooner by |
|---|---|---|---|---|
| None | 5y 1m | $4,339 | $0 | — |
| $100 a month | 3y 11m | $3,300 | $1,039.53 | 1y 2m |
| $200 a month | 3y 2m | $2,668 | $1,670.57 | 1y 11m |
| $1,000 lump sum once a year | 4y 1m | $3,607 | $732.46 | 1y 0m |
- Doubling the extra payment does not double the saving. $100 extra saves $1,039.53; $200 extra saves $1,670.57, about 1.6 times as much, because the loan is cleared sooner, leaving fewer months for the extra money to work.
- Early extras work hardest. Money applied now stops interest from accruing on that principal for the rest of the loan.
Next steps: if you have several balances, order them with the debt snowball calculator, compare a lower-rate refinance with the personal loan calculator, or apply the same idea to a mortgage with the mortgage prepayment calculator.
How this is calculated
- Each month: interest = balance × annual rate ÷ 12; the balance becomes balance + interest − payment.
- The accelerated plan uses payment + extra monthly amount, and subtracts any annual lump sum from the balance every twelfth month.
- Interest saved = total interest on the current plan − total interest on the accelerated plan; time saved = difference in months.
The calculator keeps your payment fixed and shortens the payoff; it does not lower the payment. It assumes a fixed rate, so it suits instalment loans and not variable-rate lines. Check your loan agreement for any prepayment charge before sending extra money; the Financial Consumer Agency of Canada notes that paying off debts with the highest interest first costs the least overall, while starting with the smallest balance can keep you motivated (FCAC, Paying off your debt, checked 1 October 2026).
General information, not financial advice. Confirm your lender’s prepayment terms before paying extra.
Frequently asked questions
How do extra payments save interest?
Interest is charged on the balance still owed. An extra payment reduces the balance immediately, so every later month’s interest is calculated on a smaller amount, and more of each regular payment goes to principal.
How much does an extra $100 a month save on a $20,000 loan?
On this example, $1,039.53 of interest and 1y 2m off a 5y 1m loan. An extra $200 saves $1,670.57.
Is a lump sum or a monthly extra better?
In the example a $1,000 annual lump sum saves $732.46, while $100 a month ($1,200 a year) saves $1,039.53. Part of that gap is the extra $200 a year and part is timing: money that reaches the loan earlier stops interest sooner.
Which debt should I pay off first?
The FCAC describes two approaches: pay the highest-interest debt first, which costs the least overall, or the lowest balance first, which gives quick wins and can help you stay motivated but may cost more over time. The debt snowball calculator compares both.
Could my lender charge a penalty for paying early?
Some loans do. Check your agreement before making extra payments. This calculator does not include prepayment fees, so subtract any you would pay from the interest saved.
Disclaimer
This calculator provides estimates. Actual savings depend on loan terms, prepayment policies, and consistent extra payments. Always verify prepayment rules with your lender before making extra payments.