Choosing to pay even a little extra on your loans can save you thousands of dollars. This strategy works the same for mortgages, student loans, auto loans, or really any loan that allows you to prepay interest.
For example, suppose you had a $10,000 student loan, at an interest rate of 7%, and a repayment period of 10 years. If your first payment on that loan was January 1st, 2009, you would continue paying through January of 2019...your monthly payment would be around $116, and at the end, you would have paid $3933 in interest charges...
If you paid just $30 extra a month, making the payment $146, you would pay the loan off in May of 2016, 3 years early. And, your total interest paid would be $2800, saving you $1133 in interest charges.
If you paid $60 extra each month, with a payment of $176, the loan pays off in just under 6 years in November of 2014. The total interest paid would be $2180, saving you $1753.
So, clearly, making the additional interest payment can save thousands, even on a loan for as small as $10,000. Imagine the savings for larger loans on more expensive cars, or especially the potential to save tens of thousands on your mortgage. Did you know that paying just $100 extra a month on a 30-year, $200k mortgage will save you $63,308.63 over the life of the loan? It will also pay off the loan five years early. That's worth looking into.
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