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Bi-Weekly Car Payments
Be-weekly payment plans are a great way to pay off your car loan faster with less interest paid.
How Does Bi-Weekly Car Payment Plan Work?
In traditional monthly payment plans you make one car loan payment every month.
If you however choose a bi-weekly payment plan you will make half a monthly payment every two weeks. This means that you will make 26 half payments a year, or thirteen full payments - that is one more payment every year.
The money from the additional payment goes towards reducing your car loan's principal balance. Since the future interest calculations are based on it, as you reduce this principal you also reduce the total interest you should pay, as well as the time it will take to pay off your car loan.
Thus, you pay off your car loan faster and save a lot of money in interest.
Beware of Bi-Weekly Car Payments Pitfalls
Be careful to clear up all details when arranging your bi-weekly payments since your loan servicing institution may still pay your loan monthly. If this is the case you will be making payments every two weeks and basically loaning the servicing company, interest free, half of your car payment for about two weeks every month.
You can set up a bi-weekly plan through an intermediary company. The company will send regular monthly payments to your lender but it will debit your account every second week for the higher, bi-weekly amount. Then, once a year, the company will make your extra payment.
Using such intermediary companies is rarely a good idea since you will be charged a fee for this service. Why paying a fee to someone else when you can give this money for your car loan against your principal.
Consider the following example:
You have chosen the car you want to buy and now it is time to finalize the car financing terms at the finance department. You are offered a biweekly auto deduction from your checking account. You gladly agree since this will save you money as we already explained above.
However, this is where the problems related to a third-party player may start from. Your bi-weekly payment will be automatically withdrawn from your bank account and transferred to an interest-free escrow account. Every month the intermediary company will write a check to your loan company but you will have to pay a fee for this service. This fee may turn out to be as big as your monthly payment which will eliminate the benefits from a bi-weekly payment plan. Even if you decide to cancel the arrangement with the third-party company you would still have to pay your fee.
Instead of using an intermediary company, why don't you set up a savings account and have your biweekly car payments withdrawn from your checking account and transferred into this savings account automatically. Arrange your monthly payments to be paid to the car loan company also automatically. Thus, you will benefit from the interest on the money in your savings account and in the same time, by making one extra payment annually, you will benefit from an accelerated car loan payoff.
Final tip: Use our Bi-weekly Car Payment Calculator to find out how much you can save if you select an accelerated bi-weekly payment plan for your car loan.
The information and interactive car payment calculators that are provided on this site are made available as general assistant guidance in regards to car loans and payments. We do not guarantee that any information or calculations will be accurate or applicable to your personal financial situation, circumstances, or objectives. Accordingly, before making any final decisions we encourage you to consult a qualified professional and get personalized advice.
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