loan overpayment vs investment comparison tool

The comparison tool presents the details of two strategies – the overpayer and the investor – who spend exactly the same amount each month. The overpayer prioritizes repaying the loan as quickly and cheaply as possible. The investor doesn’t overpay the loan, makes regular payments, and invests monthly. The comparison shows the amounts held by the investor and the overpayer at the end of the original loan term. By the end of this period, both will have repaid their loans and earned investment returns (since both the investor and the overpayer will eventually invest). The comparison will show who has more money in the end.

The overpayer repays the loan faster than the investor. After repaying the loan, the overpayer also starts investing – just like the investor. This means that while the investor is still repaying the loan, the overpayer allocates the same amount of money for investments as the investor spends monthly on loan repayment and/or investments. Both continue to spend exactly the same amount each month. This scenario provides a realistic comparison of the potential strategies of loan overpayment vs. investing.

The investor invests less and less new funds each month. This is because the overpayer, by overpaying the loan, reduces the loan installment each month – meaning the loan installment + overpayment decreases over time. For the investor, the loan installment doesn’t decrease (since there are no overpayments), so they invest less each month to match the total spending of the overpayer.

The investor stops investing when their loan installment exceeds the (loan installment + overpayment) of the overpayer. The situation even reverses when the (loan installment + overpayment) of the overpayer becomes less than the investor’s loan installment. The closer the overpayer gets to repaying the loan through overpayments, the lower their costs become. At this point, to continue spending the same amount, the overpayer starts investing the surplus funds.

The original loan term is the duration of the loan if it’s not overpaid. The comparison of the overpayer’s and investor’s strategies focuses on this period. The investor will repay the loan over this exact duration because they don’t make overpayments. Since the investor bears costs throughout this period, the overpayer starts investing after repaying the loan early (through overpayments) to match the same monthly costs as the investor. This way, the investor and the overpayer spend exactly the same amount until the investor repays their loan.

Yes, the investment assumes that (funds + interest) will be reinvested. This means that new funds, existing funds, and all interest (investment returns after tax deductions) are reinvested. When the investor no longer has new funds to invest, their currently invested funds will still generate returns (including interest). The "Investment Details" table presents all amounts in detail.