How to Calculate Extra Payment Options

Extra payments on loans and debts, especially large debts like a mortgage or car payment, can help pay off the debt quickly, which is only one of several benefits to using extra payment options. Extra payment options can also improve your credit score and lower the amount that is ultimately paid on the debt. Determining and calculating extra payment options can take some time, but the benefits of these extra payments can be clearly seen.

Instructions

Organize your information

1

Write out the information about the loan. Calculating the extra payment options requires taking the time to write out everything relating to the loan so that the information is easily organized. Write down the interest rate, the amount of time left to pay on the debt, the monthly payments and the amount owed.

2

Determine what your current budget can afford. Extra payment options to lower your overall debt only works when there is enough money coming in to pay the extra money each month or each year consistently. A budget for the maximum amount that can be spent monthly makes calculating the extra payment options easier.

3

Find out what your bank or lender offers in terms of extra payment options. Some banks offer several options, while others offer fewer options for clients. Also, the type of extra payment options can be limited by the bank. Making bi-weekly payments is one suggested option.

4

Use the calculator to figure out the amount that should be paid monthly based on the budget and payment plan. Extra payment options vary, from making an extra loan payment every year to paying a little extra each month. Write down the maximum amount that can be spent on the debt each month. Subtract the current payment due each month to find out the amount extra that can be paid. Multiply the number by 12. If the number is equal to a month of the loan payment, a bi-weekly payment option can be started.

5

Calculate the interest saved with each extra payment option. This can be done by first calculating the ultimate payments in the traditional payment plan, putting in information about the interest rate yearly, the current payment and the amount of remaining time. The end result will give the base number. Then calculate the amount of years taken off for each extra payment plan offered by the bank by putting in when the payments are paid, how much is paid, how much is ultimately paid extra in a year and the interest rate. The number of years taken off will lower the amount of interest paid dramatically, with only a few exceptions.