Why Paying Your Loan Biweekly Can Save Money
Changing your loan payments from monthly to biweekly can lower your interest payments. This reduces the total amount you pay over the life of your loan. Continue reading to learn why paying your loan biweekly could be a smart financial move.
How Biweekly Payments Work
Rather than paying your loan once a month, you’ll split your monthly amount in two and pay it biweekly. For example, if your loan payment is $1,200 each month, you can pay $600 every two weeks instead. This would result in paying an extra month’s payment each year.
Things to Consider
There are a couple of important things you’ll want to consider before switching over to biweekly payments.
- Prepayment Fees: Depending on your lender and your loan terms, you might get charged a fee for paying off your loan sooner than the end date. Read your loan terms or speak with a lender. This will help you identify any penalties for early payment.
- Takes Up a Lot of Your Budget: Paying a big chunk of money every two weeks can eat into your budget. If it doesn’t financially make sense for your budget, you maybe shouldn’t make biweekly payments.
How Biweekly Payments Save Money
- One Extra Payment Yearly: As mentioned above, paying biweekly results in one month more paid each year. This means that you will pay 13 months of your loan rather than 12 months.
- Reduced Interest: Because you’re paying biweekly and an extra month, the principal reduces faster. With the principal reducing faster, there will be less interest paid throughout the loan.
- Long-Term Savings: If the loan you’re paying is a mortgage, paying biweekly can cut several years off the loan term, reducing the amount of interest paid.
Who Benefits from Biweekly Payments
- People who have high interest rates: If you have a high interest rate on your loan, paying every other week could be a smart financial move. You’ll notice smaller interest payments being made when you pay every other week compared to once a month.
- People who plan to stay in their home for several years: If you’re planning on staying in your home for a while, paying biweekly could cut years off your mortgage. Wouldn’t it feel nice to pay off your 30-year mortgage in 24 years? Paying biweekly could help you achieve that.
- People with a stable income: If you have a stable income and can afford to make a payment every other week, why not do just that? The possible savings make this a logical choice. It is ideal for those who have to budget for it.