Alternative Payment Frequency Calculator

Understanding Different Payment Frequencies

Most standard loans, like mortgages and auto loans, default to a monthly payment schedule. However, changing your payment frequency can sometimes be a powerful strategy to pay off your loan faster and save a significant amount on interest.

This calculator compares the standard monthly payment plan against two common accelerated payment strategies:

• Bi-Weekly Payments: You pay half of your normal monthly payment every two weeks. Since there are 26 two-week periods in a year, this results in 26 payments, equivalent to 13 full monthly payments annually (one extra).
• Weekly Payments: You pay one-quarter of your normal monthly payment every week. With 52 weeks in a year, this results in 52 payments, also equivalent to 13 full monthly payments annually.

How Do Accelerated Payments Save Money?

The "magic" behind bi-weekly and weekly accelerated plans isn't just paying more often; it's the effect of making that one extra monthly payment each year. This extra amount goes directly towards reducing your principal loan balance.

Benefits include:

• Reduced Total Interest: As the principal decreases faster, less interest accrues over the life of the loan.
• Faster Loan Payoff: You significantly shorten the loan term, becoming debt-free sooner.

Important Considerations

• Lender Policies: Not all lenders offer formal bi-weekly or weekly payment plans. Check with your lender first. Some may allow you to simply make extra principal payments alongside your regular monthly payment, achieving a similar result.
• Principal Application: Ensure your lender applies the extra payment amounts directly to the principal balance. Some third-party services charge fees for setting up bi-weekly payments, which might negate the savings. Often, you can achieve the same outcome by simply adding 1/12th of your monthly payment to each regular payment and designating it as "extra principal."
• Budgeting: Ensure your budget can comfortably handle the more frequent withdrawals if switching from monthly payments.

How to Use This Calculator

1. Enter the total Loan Amount (principal).
2. Input the Annual Interest Rate (e.g., enter 4.5 for 4.5%).
3. Specify the original Loan Term in Years.
4. Click the "Compare Payments" button.
5. The results table will show a comparison of payment amounts, total interest paid, total cost, and payoff time for monthly, accelerated bi-weekly, and accelerated weekly schedules.

Disclaimer: This calculator provides estimates for comparison purposes. Results assume that the interest rate remains constant and that accelerated payments are applied directly to principal. Actual figures may vary based on specific loan terms, lender policies, potential fees, and rounding methods. Always consult your loan agreement and lender for precise information.