Early repayment: lower payment or shorter term?

An early repayment comes straight off the balance at the end of the month you choose. You then have two options: keep the payment and shorten the term, or keep the term and let the bank recalculate a lower payment on the remaining balance and months. A monthly extra, if you add one, works the same way every month.

Shortening the term always saves more interest, because you keep the borrowed money for less time. Lowering the payment frees up monthly budget, useful if you want a safety margin. A repayment made later saves less, because until then you pay interest on the full balance.

Variable-rate loans carry no early repayment fee. On fixed-rate loans the fee is at most 1% of the amount repaid (0.5% with under a year left); we apply it to every amount paid early and subtract it from the saving. The calculation assumes a constant rate and equal payments; check the rules in your own contract.