Making frequent, automatic payments on a loan has its perks.
Not only do biweekly payments shorten the term of the loan by allowing you to hit the principal more often, it also reduces the amount of interest that you pay your lender.
How does it work? With biweekly payments, you end up making one extra payment each year, compared to monthly installments. So when you make biweekly payments on a 15-year mortgage, for instance, you'll actually pay off your mortgage in about 13 1/2 years. And an automatic payment plan is icing on the cake - you get peace of mind knowing that you'll never have a late payment.
"However often you're paid is how often you should pay on your loan so that your money's not just sitting in a checking account earning no interest," says Cindy Hilkin, a loan consultant at Dupaco Community Credit Union. "Make your money work for you."
But some lenders charge consumers prepayment or early payoff penalties - a fee you can avoid by choosing your lender carefully.
"You shouldn't have to pay to give the financial back their money," Hilkin says, adding that Dupaco does not charge such penalties.
Other lenders may wait until you have a full payment before applying it to the loan. "And that's missing the point of what you're trying to do," Hilkin says.
If you're offered an accelerated loan payment plan, read the fine print. Make sure there are no hidden fees, and that the payments are getting applied to the principal when you make them.
By Emily Kittle