The trade-off nobody shows you at the counter
Lenders quote the monthly payment because it is the number that decides whether you say yes. It is also the number that hides the cost. Stretching a loan over more years shrinks every payment while quietly increasing the total, because interest keeps accruing for all those extra months.
Here is the same $20,000 borrowed at 6.5%, changing nothing but the term:
| Term | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 3 years | $612.98 | $2,067 | $22,067 |
| 5 years | $391.32 | $3,479 | $23,479 |
| 7 years | $296.99 | $4,947 | $24,947 |
| 10 years | $227.10 | $7,252 | $27,252 |
Going from three years to ten cuts the monthly payment by about 63% — and more than triples the interest. Neither column is the “right” answer on its own. The short term is cheaper; the long term is survivable month to month. What matters is that you choose with both numbers in front of you, which is exactly what the calculator above puts there.
Where the money goes early on
Fixed-rate loans are amortised, which means every payment is identical but its split changes. Interest is charged on the outstanding balance, so at the start — when you owe the most — the majority of your payment is interest and only a sliver reduces the debt. As the balance falls, that ratio flips. On a 30-year mortgage it can take well over a decade before principal outweighs interest in a given payment.
This is why overpaying early is disproportionately powerful. An extra payment in year one removes principal that would otherwise have accrued interest for the entire remaining term; the same payment in the final year saves almost nothing. If your loan permits penalty-free overpayments, the first years are where they buy the most.
The figures here assume a fixed rate and no fees. Compare lenders on APR rather than the headline interest rate, since APR folds in certain charges and is the closer proxy for what the loan actually costs you.