Lump sum vs extra monthly repayments

Concept

Why timing matters

A lump sum paid early drops the principal straight away which lowers every later interest calculation. Extra monthly payments build a similar effect but more slowly. If you can do it earlier the saving in interest is usually larger.

Examples

Two worked examples

Assume a $500,000 loan at 6.25 percent over 30 years.

Scenario A, $10,000 lump sum in year one: principal falls immediately so interest is smaller for the whole remaining term.
Scenario B, $200 extra per month: principal falls faster than the base schedule and you pay less interest each month than you would have.

Both options save interest compared with doing nothing. The early lump sum usually wins on total interest saved. Extra monthly payments are easier for many budgets and still deliver a strong result.

Context

Opportunity cost to consider

Before moving cash into the loan, consider your emergency fund, other debts, and any higher return investments of similar risk. This is general information, not advice.

How to

How to model both in our calculator

Open the Loan Repayment Calculator.
Enter your loan details and note the base schedule.
To test a lump sum, add a one off extra payment at your chosen month and compare total interest.
To test extra monthly payments, add a recurring extra amount and compare again.
Repeat with different amounts until the plan fits your goals and cash flow.