Home / Money Blog

## Paying Extra

Image source

**THE SCENARIO**
I have a car loan at the moment and I'm considering paying extra on it to retire the debt faster.
I currently pay $206.42 every month, with an annual percentage rate of 3.140%. I still owe $7,638.11.
**The question:** If I were to pay an extra $65 every month, how much faster would I be paid off than if I just kept with the required payments?

**THE SOLUTION**
This one is fairly straightforward, and has 3 parts:
**Step 1: The loan with no extra monthly pay-down**
N: (This is what I'm trying to find)
I/YR: 3.145 (The loan's interest rate is 3.145%)
PV: 7,638.11 (I currently owe $7,638.11)
PMT: -206.42 (My monthly car payment is $206.42)
FV: 0 (I want to know how long it would take me to pay it off entirely)
**Step 2: The loan with $65 extra monthly pay-down**
First, a little arithmetic. $206.42 + $65 = $271.42.
N: (This is what I'm trying to find)
I/YR: 3.145 (The loan's interest rate is 3.145%)
PV: 7,638.11 (I currently owe $7,638.11)
PMT: -271.42 (If I pay an extra $65 per month, my payment would be $271.42)
FV: 0 (I want to know how long it would take me to pay it off entirely)
**Step 3: Find the difference**

Note: You can use any financial calculator to do this problem, but if you want the BEST, you can
get our 10bii
Financial Calculator for iOS, Android, Mac, and Windows!

- Figure out how long I still have on the loan as-is
- Figure out how long it would take me to pay off the loan with an extra $65 in payments every month
- Do a little subtraction to see how much faster it would be

If I were to make no extra payments, I'll pay off the loan in **38.97 months**.

If I were to pay an extra $65 every month, I'd pay off the loan in **29.27 months**.

If I pay $65 extra every month, I'll pay off the loan 38.97 - 29.27 = **9.70 months faster**.

What do you think? Would you pay extra on this loan to pay it off in 2 ½ years instead of 3 ¼? Why or why not? Let us know in the comments!