Why extra payments punch above their weight
Every extra dollar goes straight to principal, and interest is charged on principal. So an extra payment doesn't just shrink the balance once — it shrinks every future month's interest charge. The effect compounds in reverse, which is why even $50–$100 a month visibly shortens most loans.
A worked example
A $15,000 balance at 9% with a $320 payment takes about 4 years 8 months to clear and costs roughly $3,300 in interest. Add $100 a month and it is gone in about 3 years 6 months with around $2,400 of interest — a year of your life and about $900 back, in exchange for a sacrifice most budgets can absorb.
Where extra payments rank against other uses of money
- Beat the guaranteed rate test. Paying down a 9% loan is a guaranteed, tax-free 9% return. Very few investments can promise that.
- But keep an emergency fund first. Money sent to the loan is hard to get back. Three to six months of expenses in cash comes before aggressive prepayment.
- Check for prepayment penalties. Rare on modern personal loans, still occasionally present on mortgages. A quick look at your agreement settles it.
Getting the payment applied correctly
Tell your lender that extra amounts should be applied to principal, not held as a credit toward next month's payment. Most banking apps have an explicit "pay extra principal" option; using it is the difference between actually shortening the loan and merely prepaying future bills.