Paying a little extra on your car loan each month, or making a one-off lump sum payment, can cut both the interest and the number of months you pay. See exactly how much with the extra payment calculator below.
Why overpaying saves money
Interest is charged every month on what you still owe. Every extra payment goes straight to reducing that balance, so all the following months carry less interest. The earlier you overpay, the more you save.
Worked examples
| Loan | Extra payment | Paid off in | Interest saved |
|---|---|---|---|
| $25,000 at 6.5% over 5 years (interest $4,349) | $100 a month | 49 months (11 sooner) | $865 |
| $25,000 at 6.5% over 5 years | $200 a month | 41 months (19 sooner) | $1,439 |
| $25,000 at 6.5% over 5 years | $2,000 once, after 1 year | 55 months (5 sooner) | $562 |
| £15,000 at 7% over 4 years (interest £2,241) | £100 a month | 37 months (11 sooner) | £551 |
| ₹8 lakh at 9.5% over 5 years (interest ₹2,08,089) | ₹3,000 a month | 49 months (11 sooner) | ₹40,219 |
| ₹8 lakh at 9.5% over 5 years | ₹1 lakh once, after 1 year | 52 months (8 sooner) | ₹41,748 |
Check these before you overpay
- UK: the Consumer Credit Act gives you the right to repay early, but the lender may charge a small early repayment fee. Ask for a settlement figure first.
- US: most auto loans charge simple interest, so extra payments save money. If your loan uses precomputed interest, overpaying saves much less. Ask the lender to apply extra payments to the principal.
- India: car loans are usually fixed-rate, and many lenders charge a part-prepayment or foreclosure fee. Check your loan agreement for the charges and any lock-in period.
Overpay or save?
Keep an emergency fund first. After that, compare your loan’s interest rate with what your savings earn: overpaying a 9% loan is like earning a guaranteed 9% on that money, before any fees.
Frequently asked questions
Is it better to pay extra every month or a lump sum?
Both work. What matters most is paying early and how much you pay extra in total. A lump sum made early in the loan saves more than the same amount paid near the end.
Does overpaying reduce my monthly payment or the loan term?
With most car loans the payment stays the same and the loan ends sooner. Some lenders let you choose; ask yours.
Will paying off my car loan early hurt my credit score?
Your record of on-time payments stays on your file. Your score may move a little when the account closes, but paying off a loan is not treated as a negative.
Related: Car loan extra payment calculator · Car loan refinance calculator · How loan EMI is calculated