Alternative Payment Frequencies Calculator

Alternative Payment Frequencies Calculator – What Difference Can it Actually Make?

When it comes to loan payments, a large majority of borrowers tend to delay their payments as much as they can. As a consequence of this procrastination, the interest keeps piling up. In the end, they are unable to afford what they have borrowed; as a result, they end up in great financial distress. So, the whole point is that regular payments are extremely important.

Alternative Payment Frequencies Calculator

Speaking of regular payments, there is one factor that most people often overlook, the frequency of payments. The frequency and schedule of your payment can make a great difference. That is why we have introduced the alternative payment frequencies calculator to help you assess the difference. Not only does it change the total period of the loan, it can also change the amount of interest you will have to pay. So, what will you choose?

That is still a very tricky question and the answer depends on a number of factors. While the alternative payment frequencies calculator can help you compare the differences, it is very important to know how exactly these schedules work to create that difference. So, here is a little explanation of some of the most commonly used payment frequencies.

Monthly payment

The typical payment schedule used is the monthly payment schedule. A large majority of people choose this default option because they receive their pay or income on a monthly basis. It makes it easier for them to pay their dues as soon as they receive their pay.

The monthly payment schedule is simple and straightforward. There are 12 payments every year and the interest rate is pretty clear as well.

Semi-monthly Payments

It may sound like you will make a payment after every two months, but that is not how it typically works. A semi-monthly schedule means you are paying your mortgage twice a month. Half of the payment is made on the first and the rest is paid on the 15th of the month. The lenders apply it to the principal right away.

In this kind of plan, a total of 24 payments are made each year, but the amount of the loan paid off each year remains the same as in case of monthly plan. The difference is the interest payment. By making quicker payments, you can save a decent amount in the overall interest payment on the loan.

Biweekly Payment

It is easy to confuse semi-monthly with biweekly. In case of biweekly, you need to make a payment every two weeks. While you are still making two payments per month, let us not forget that not every month has four weeks in it, and there are 26 biweekly periods in one year.

So, instead of 24 payments, you are making 26 payments i.e. one extra month worth of payment every year. The difference is both in terms of interest paid on the loan as well as the total time period of the loan. However, how the lender applies the payment to the capital can make a difference.

While these are the commonly preferred schedules, there are other considerations such as bimonthly, annual, quarterly and weekly, etc.

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