Loan Payoff Calculator
Calculate the payoff date for a loan and see how much you’ll pay in interest.
Loan Payoff Summary:
|Estimated Payoff Date:|
|Time to Pay Off:|
1 yr and 9 mos
On this page:
How to Calculate a Loan Payoff Date
Calculating the loan payoff date for any debt you own is an important step if you are working to pay off your loans. You can see how long it will take to pay off a loan and how fast you can pay it off if you pay extra monthly using the calculator above.
How Long Will It Take to Pay Off a Loan
The loan payoff calculator shows the estimated payoff date, the time left to pay the loan off, and the total interest and payments that will be paid. It also displays the amortization schedule, which shows the portion of the monthly payment that is applied to principal and interest and the remaining balance of the loan.
The Loan Payoff Calculator assumes that the monthly payment and interest rate are held constant throughout the remainder of the loan. Once you know the loan balance, monthly payment, and interest rate, you can enter them in the calculator to see the results.
Let’s look at an example. Suppose you have an outstanding loan balance of $20,000 at 6% annual interest.
The monthly payment you’ve been making is $400. (our loan payment calculator shows how to calculate the monthly payment on a loan).
Using the calculator, you can see that if you continue making payments of $400 per month and the interest rate doesn’t change, and the loan will be paid off in 4 years and 10 months.
You will have paid $3,072.24 in interest, so the total payments in just under 5 years will be $23,072.24.
How to Calculate Loan Interest
Loan interest is calculated using a two-step process. First, the annual interest rate needs to be divided by 12 in order to get a monthly interest rate.
Then, the remaining loan balance will be multiplied by this monthly or periodic interest rate to calculate what portion of the monthly payment goes to interest.
Let’s go back to our example. Our annual interest rate is 6%, so the monthly interest rate will be 0.5%.
For the first payment, the remaining balance was $20,000. So, the first interest payment will be $20,000 x 0.5% = $100. After the first payment, the remaining balance is $19,700.
Therefore, the second interest payment will be $19,700 x 0.5% = $98.50. You can find both of these interest payments in the amortization schedule of the Loan Payoff Calculator.
The interest payment becomes smaller each month because there is a smaller balance to multiply the interest rate by every month. The first interest payment was $100, and the final interest payment (with a full $400 monthly payment) will be $3.34.
The actual final payment will actually be less than $400 to pay off the loan. If you want to see the total interest paid on the loan, you can also use a loan interest calculator.
Formula to Calculate Principal Paid per Payment
The principal paid per payment is calculated by taking the monthly payment and subtracting the interest payment. In other words, the interest payment plus the principal payment equals the monthly payment.
Since our monthly payment is fixed at $400 in our example, the principal payment is found by subtracting the interest payment from $400. See the formula below.
PMT = payment amount
P = remaining principal balance
r = periodic interest rate
The first principal payment will be $300, which is found by $400 – $100. The second will be $310.50. The final principal payment, with a full $400 monthly payment, will be $396.66.
We saw that the interest payment goes down over time. But here, the principal payment increases farther into the loan payment schedule. Since the monthly payment is fixed at $400, as the interest payment falls, the principal payment must increase.
How to Calculate an Early Payoff Date
An early payoff date is calculated by increasing the total payment each month. In the example we have been using, a $20,000 loan was paid off in 4 years and 10 months with a $400 monthly payment.
Let’s say you could apply an extra $100 each month to the loan. If you pay $500 each month towards the loan, you could pay it off in 3 years and 9 months. More than 1 year can be shaved off of the total time that you will need to make monthly payments.
Also, the total interest will be reduced by about $700 to $2,370.35, so not only will you save a year of time, but you will also save money by paying less interest.
Now let’s say you can double the payment to $800 a month. The total amount of time will be more than cut in half (2 years 3 months) and so will the total interest paid ($1,418.74).
You can also use a specific loan payoff calculator to help with various types of loans, such as calculating a mortgage payoff or student loan payoff. These loans work the same way, so they can be used for any type of loan that you have.
How Much Do Extra Payments Help?
There are two reasons why extra payments reduce the time it takes to pay off a loan. First, they automatically increase the amount that goes to principal each month.
Also, they reduce future interest payments because the remaining principal balance will be smaller at each time period. Let’s look at each of these in more detail.
First, the principal payment automatically increases. The first payment of $400 in our example paid $300 towards principal.
If we increase the monthly payment to $500, that extra $100 goes straight to the principal balance, so now $400 goes to pay down the principal balance. This is repeated each month. The faster the principal payment goes down, the faster the loan will be paid off in full.
Also, as the remaining principal balance goes down faster, the future interest payments will also be less because interest payments are based on the remaining principal balance.
Both of these work together to reduce the loan payoff time when extra payments are applied to the loan. Let’s look back at our examples and compare the principal and interest payments of the 3rd payment when we pay $400 or $500 per month.
With a $400 monthly payment, the third payment calls for a principal payment of $303.01 and an interest payment of $96.99. With a $500 monthly payment, the third payment calls for a principal payment of $404.01 and an interest payment of $95.99.
As you can see, the amount that pays down principal is $101 greater with a $500 monthly payment, even though we only pay an extra $100 a month.
This difference is even greater the further we are in the amortization schedule.