Should I Make Biweekly Payments on my Auto Loan?

Jump To: Definition | How Bi-weekly Payments Save on Interest | Other Benefits | Know Before You Decide | Existing Loans | Questions to Ask | Another Option to Save | Community First Loans | FAQ

When you’re paying off a car loan, it’s natural to wonder if there’s a smarter way to make your payments. You may have heard that making biweekly payments can help you pay off your loan faster and save money on interest. But how does it actually work, and is it worth it? The short answer is that it can be.

Making payments every two weeks instead of once a month can help you make an extra payment toward your auto loan each year. That extra payment can reduce your principal balance faster, which can mean less interest paid over the life of the loan. Let’s take a closer look.

What Are Biweekly Auto Loan Payments?

With a traditional monthly payment schedule, you make 12 payments each year.

With a biweekly schedule, you make a payment every two weeks. Since there are 52 weeks in a year, that works out to 26 half-payments; the equivalent of 13 full monthly payments each year.

For example, if your monthly car payment is $500, you could pay $250 every two weeks. Over the course of a year, you would make 26 payments of $250, totaling $6,500.

Under a traditional monthly schedule, you would pay $6,000 over the same year.

That extra $500 is essentially one additional monthly payment.

How Can Biweekly Payments Save Money on Interest?

The key is your loan principal. Your auto loan payment is made up of principal (the amount you borrowed) and interest (the cost of borrowing that money). As you reduce your principal balance, the amount of interest charged over time can decrease.

Making an additional payment each year helps reduce your principal sooner. And when you owe less, you generally pay less interest over the remaining life of the loan.

Paying your loan off sooner can also shorten the amount of time you spend making payments. A shorter auto loan term generally means paying less interest overall, while longer terms can result in more interest over the life of the loan.

So, while biweekly payments don’t magically change your interest rate, they can help you reduce the balance faster. This can reduce the total amount of interest you pay.

What Are the Other Benefits of Paying Biweekly?

Saving on interest isn’t the only potential benefit. It can make budgeting easier. If you receive a paycheck every two weeks, matching your loan payments to your pay schedule may make it easier to set aside the money. Instead of having one larger payment come out of your budget each month, you’re making smaller payments more frequently.

It can help you pay off your car sooner. That extra annual payment can shave time off your loan, depending on your balance, interest rate, and remaining term.

It can help you build momentum. There can be something satisfying about watching your loan balance steadily decrease. Paying a little more often can turn a long-term financial goal into smaller, manageable steps.

Before You Decide on Making Biweekly Payments

There is one important detail to check first: how your lender handles biweekly payments. Not every lender applies partial payments in exactly the same way. Some may hold a half-payment until enough money has accumulated to make a full payment. If that’s the case, you may not receive the same interest-saving benefit you would from having the additional money applied to your loan sooner.

Can an Existing Auto Loan Payment Schedule be Changed to Biweekly?

If you have an existing auto loan with a monthly payment schedule, some financial institutions may allow you to switch to biweekly payments. However, it is important to understand how this works before simply making a half payment.  You would need to make a full payment on the scheduled due date before switching to biweekly payments, which means you would need to be a payment ahead to avoid deliquency.

Before setting up a biweekly payment schedule, ask your lender:

• How are partial payments applied?
• Will extra payments go toward principal?
• Is there a fee for making payments more frequently?
• Are there any restrictions on paying the loan ahead of schedule?

 

Jump to FAQs to see Community First's answers to these questions.

  It’s also important to make sure you’re not stretching your budget just to pay your loan faster. If making biweekly payments leaves you short on emergency savings or other important expenses, maintaining a comfortable monthly budget may be the better choice.

Another Simple Option: Make One Extra Payment

If your lender doesn’t offer a formal biweekly payment option, you may be able to accomplish something similar by making one additional principal payment each year.

For example, you could divide your monthly payment by 12 and add that amount to your regular payment each month. Over a year, those small additions add up to one extra monthly payment.

You can also use an occasional tax refund, bonus, or other extra money to make an additional payment toward your auto loan.

Before making extra payments, check your loan agreement and confirm how additional payments are applied.

Auto Loan Benefits at Community First

If you’re shopping for a vehicle or thinking about refinancing your current auto loan, Community First Credit Union offers several options designed to make auto financing easier.

Community First offers competitive interest rates, flexible financing terms, and easy, fast approvals, with lending decisions made locally. Auto loans are available for new and used vehicles. Community First also offers auto loan refinancing for borrowers who may be able to lower their rate, reduce their payment, or pay their loan off faster.

And if you’re ready to shop for a vehicle, an Auto Loan Express Draft can help you know how much you can afford before you head to the dealership.

The right auto loan isn’t just about finding a payment that fits your budget today. It’s also about understanding how your rate, loan term and payment strategy affect what you’ll pay over time.

So, Should You Make Biweekly Auto Loan Payments?

If your budget allows it, biweekly payments can be a smart strategy for paying down your auto loan faster and potentially reducing the amount of interest you pay.

The biggest advantage comes from making the equivalent of one extra monthly payment each year. That additional money can reduce your principal balance sooner, helping you work toward owning your vehicle outright. Before you make the switch, though, talk with your lender and make sure you understand how your payments will be applied. And remember: the best payment strategy is one that helps you make progress without putting unnecessary pressure on the rest of your budget.

Ready to explore your auto loan options? Community First can help you find financing that fits your budget and your goals. Contact Community First for personalized financial solutions that meet your unique needs.

FAQ

How are partial payments applied with a Community First auto loan?

All payments are applied as follows: fees, interest, and the remainder goes to the principle.

Will extra payments go toward the principle?

Not automatically. The 'principle only' feature would need to be selected for the additional payment to be applied to principle. Interest accrues daily so if the extra payment is made on the same day as the regular payment, it would apply to principle. However, if the additional payment is made the next day, there would be one day's interest calculated in. If you have questions, contact Community First and we will be glad to walk you through your payment options.

Is there a fee for making payments more frequently?

No, there is not a fee for making payments more frequently at Community First. There is no prepayment penalty to pay off the loan early either. If a Community First member pays off the loan early, they pay less in interest.

Are there any restrictions on paying a Community First loan ahead of schedule?

The only restriction is that a member cannot pay ahead more than 90 days. (This does not apply to revolving lines of credit or credit cards. Revolving lines of credit cannot be paid ahead.)

Does making two payments per month mean I am paying more?

Making bi-weekly payments, as opposed to one monthly payment, means you pay the same amount each month, but end up with 1 additional full payment for the year. (26 half payments is the equivalent of 13 monthly payments each year.) This pays the loan off faster, which means you pay less in interest.

Are there other ways to save on interest?

There are ways to pay less interest, including a shorter term, a larger down payment, or auto refinance. Learn more.

Can I make extra payments toward my auto loan?

In most cases you can, but it's important to check with your lender. Community First offers several payment options.

What happens if I miss a payment?

You could incur late fees and credit impact. If you're having trouble making payments, contact your lender as soon as possible.

Can my credit score impact the interest rate on my loan?

Yes, a credit score is what lenders use to assess the likelihood of a borrower's ability to repay a loan. A lower score does not automatically disqualify a borrower from getting an auto loan, however. It is beneficial to speak with your bank or credit union to explore your options.

*All information contained in this blog is for informational purposes only. The credit union makes no representations as to the accuracy, completeness, suitability, or validity, of any information. The credit union is not responsible for any errors, omissions, or any losses, injuries, or damages arising from its display or use. All information is provided AS IS and with no warranties and confers no rights. The credit union is not responsible for material that is found through non-credit union links posted on this blog site. Ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.