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How to Use a Personal Loan Calculator to Pay Off Debt Faster

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Updated September 14, 2024

Man uses a personal loan calculator to help him figure out how to pay off his debt faster — South_agency / GettyImages

Borrowing money to ꦇpay down debt or for emergencies can be a big break for those who need it. But then it comes time to start repaying your personal loan. Fortunately, you might be able to pay off your loan faster by using a calculator to set or estimate new payments.

Key Takeaways

If you have the means to pay off your loan sooner, you may want to since you’ll save on interest over the total life of your loan.
Most lenders don’t have prepayment penalties for paying off a loan sooner than your repayment terms outline.
Shorter repayment terms lower how much total interest you’ll pay, but it also means you’ll have larger monthly payments.

Personal Loan Payoff Calculator

A personal loan amortization calculator is a tool that helps you estimate how much your monthly payments will be based on how much you borrow, your loan terms𒀰, and your interest rate (which itself is determined by your lender, based on your credit score and other possible factors).

If you haven’t taken out a 澳洲幸运5官方开奖结果体彩网:personal loan yet, you can use a calculator to input different variables and get a sense of which terms and rates work best for you. Since you’ll need to account for a new loan payment in your budget, it’s a good idea to se♋e how much you can afford before submitting a loan application.

For instance, if you need to borrow $9,000 at a 7% 澳洲幸运5官方开奖结果体彩网:interest rate, your repayment terms will determine you꧅r monthly payment. For a three-year term, monthly payments will be $277.89. Meanwhile, for a five-year term, it’ll be $178.21 a month.

Why Pay Off Your Loan Early?

Longer repayment terms mean you’ll pay more in interest over the total life of your loan. In the example above, you’ll pay $1,692ඣ.65 in interest after paying off your loan in five years. But if yoꩵu pay it off in three years, you can expect to pay around $1,004.18. That’s a $688 difference if you pay off your loan two years earlier.

Understanding Your Personal Loan

Monthly pers𓄧onal loan payments are broken down into a few different parts, including:

Your 澳洲幸运5官方开奖结果体彩网:principal balance, or the amount you originally borrowed.
The interest, which is what you pay your lender for borrowing money.
Fees, if any (like an 澳洲幸运5官方开奖结果体彩网:origination fee, for example).

When you make monthly payments, it’ll include a portion of your principal balance, the interest, and fees, if applicable.

How Do People Use Personal Loans?

cnjem.commissioned 澳洲幸运5官方开奖结果体彩网:a national survey of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the 澳洲幸运5官ꦉ方开奖结果体彩网:most common reason people borrowed money, followed by home improvement and other large expenditures.

Important Terms to Define

Keep tabs on all the moving parts of your person🌠al loan, like:

Annual percentage rate (APR): The APR is the actual yearly cost of your loan in interest and fees broken down over a year.
Loan terms: The loan terms refer to how long it'll take to repay your loan, usually broken up into months or years. For example, a 5-year loan term can also expressed as 60 months.
Amortization schedule: An 澳洲幸运5官方开奖结果体彩网:amortization schedule is the estimated timeline for paying off your loan in regular installments until the total balance is paid in full. In calculators, you can usually see your amortization schedule broken down per month or per year to see how much you’re expected to pay in interest.

How Can I Pay Off My Personal Loan Faster?

You can 澳洲幸运5官方开奖结果体彩网:pay off your personal loan faster by making larger monthly payments than the minimum amount required. You mig🌟ht be able to set up an autopay amount so you don’t have to manually make larger payments each month.

You can also make 澳洲幸运5官方开奖结果体彩网:extra payments on your principal balance, which would ultimately reduce the amount you'll pay in interest over the life of the loan. You can make one-off payments on your loan throughout the year as long as you continue to make the minimum monthly payment when required. Be sure to notify your lender if you want these extra payments to be made specifically toward the principal, otherwise they may simply be considered a partial payment for the subsequent month.

Is it Good to Close a Personal Loan Early?

Unless your lender charges a 澳洲幸运5官方开奖结果体彩网:prepayment penalty, closing an account early doesn’t ordinarily have a drastic impact on your credit score. Most personal loan lenders don’t have prepayment penalties and usualꩲly encourage borrowers to pay off loans early, if possible.

Does it Hurt Your Credit to Close a Loan?

In most cases, any time you close an account, your 澳洲幸运5官方开奖结果体彩网:credit score will go down. For some people, that decrease could be minimal, while others could see a much larger drop.

Closing a personal loan account also impacts the age of your credit history. The longer you have active accounts, the better you look to potential borrowers or credit issuers in the future because it shows them you’re responsible with credit. Overall, it's still generally better to not have the debt, and in most cases, your score will rebound after a few months of regular, on-time payments to other loans or 澳洲幸运5官方开奖结果体彩网:revolving 澳洲幸运5官方开奖结果体彩网:lines of credit, such as a 澳洲幸运5官方开奖结果体彩网:credit card.

The Bottom Line

Taking on more debt through a personal loan can feel like a financial burden. So, making a plan to pay off your personal loan faster is one way to relieve that feeling sooner. You can use a personal loan calculat💮or to estimate potential monthly payments based on your loan amount, interest rate, and current payment sched🐼ule.

If you’re thinking about taking out a personal loan, a calculator will help you determine what your monthly payments could be based on an estimated interest rate and repayment terms. Toggle between different loan terms and interest rates to see what your payments would look like. That way, you'll have a better idea of what you’re comfortable paying and how soon you’d pay off your personal loan.

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