Tilted Forum Project Discussion Community - View Single Post - Do you make Biweekly payments? Why/why not?

NoSoup · 03-30-2005, 10:41 AM

It applies to any installment loan, but the longer the term the more of an impact you'll see.

Never, ever, EVER pay to be able to make bi-weekly payments. I know of one lender out there that charges a $750.00 initial set up fee to withdraw a 1/2 payment out of your checking account every two weeks.

If you are with a lender that would do that, it is actually slightly more to your advantage to forgo the bi-weekly payments and just make an additional monthly payment at the beginning of each year.

Basically, it works like this:

If you were to have a $10,000.00 loan and your monthly payment was $500 per month, your interest accrues daily based on your current balance.

If you only make a single monthly payment, the interest paid will be calculated on having a $10,000.00 balance for 30 days. If you make bi-weekly payments of half that amount, the interest would be calculated on a $10,000.00 balance for 14 days and then based on a $9,750.00 balance the next 14 days, reducing the amount of interst you pay.

Gar1976 already pointed out where most of your savings come from though - in essence, you are making an additional payment each year, simply because of how our calander is set up. If you pay monthly, you make 12 payments per year - if you were paying twice a month, it would equal 24. As there are 52 weeks in a year, paying every two weeks would give you a total of 26 payments - or 13 monthly payments.

I would highly recommend doing this on any installment loan that you have, be it bi-weekly or just an additional payment every year. Basically, the more often you pay the greater your savings - however, the savings, especially on shorter term loans, can be negligible. When I worked at a credit union we had a fellow there that divided his monthly payment up into how much he needed to transfer a day. Every day, without fail, he would come in and transfer the $2.38 from his savings account to his car loan to maximize his savings....

03-30-2005, 10:41 AM	#3 (permalink)
NoSoup Non-Rookie Location: Green Bay, WI	It applies to any installment loan, but the longer the term the more of an impact you'll see. Never, ever, EVER pay to be able to make bi-weekly payments. I know of one lender out there that charges a $750.00 initial set up fee to withdraw a 1/2 payment out of your checking account every two weeks. If you are with a lender that would do that, it is actually slightly more to your advantage to forgo the bi-weekly payments and just make an additional monthly payment at the beginning of each year. Basically, it works like this: If you were to have a $10,000.00 loan and your monthly payment was $500 per month, your interest accrues daily based on your current balance. If you only make a single monthly payment, the interest paid will be calculated on having a $10,000.00 balance for 30 days. If you make bi-weekly payments of half that amount, the interest would be calculated on a $10,000.00 balance for 14 days and then based on a $9,750.00 balance the next 14 days, reducing the amount of interst you pay. Gar1976 already pointed out where most of your savings come from though - in essence, you are making an additional payment each year, simply because of how our calander is set up. If you pay monthly, you make 12 payments per year - if you were paying twice a month, it would equal 24. As there are 52 weeks in a year, paying every two weeks would give you a total of 26 payments - or 13 monthly payments. I would highly recommend doing this on any installment loan that you have, be it bi-weekly or just an additional payment every year. Basically, the more often you pay the greater your savings - however, the savings, especially on shorter term loans, can be negligible. When I worked at a credit union we had a fellow there that divided his monthly payment up into how much he needed to transfer a day. Every day, without fail, he would come in and transfer the $2.38 from his savings account to his car loan to maximize his savings.... __________________ I have an aura of reliability and good judgement. Just in case you were wondering...