How does making extra payments on an amortized loan affect the total interest paid?

Making extra payments on an amortized loan decreases the total interest paid over the life of the loan. When extra payments are applied, they reduce the principal balance more quickly than scheduled, which directly affects the amount of interest that accrues. Interest on an amortized loan is calculated based on the outstanding principal, so lowering this balance through additional payments means that future interest calculations will be based on a smaller amount. As a result, less interest accumulates over time, ultimately reducing the total interest paid by the borrower.

It's important to note that while lenders may have different policies regarding extra payments—some may charge penalties or fees for paying off a loan early—these penalties typically do not apply to all loans. Therefore, borrowers should always check their loan terms. Nonetheless, the core principle remains that reducing the principal balance through extra payments generally leads to paying less interest overall.