Biweekly payment plan companies are making a comeback as they attempt to advertise their biweekly payment program for loans. This is a type of program that claims to be an extremely convenient way to save thousands of dollars by budgeting for payments on such things as mortgages and car loans. These types of plans are very straightforward, as they simply will divide your monthly loan payments in half and then proceed to automatically withdraw from your account for the half payments biweekly. Due to the fact that there are 52 weeks in one year, you’ll be subject to 26 bi-weekly payments, which allows you to make 13 complete payments in a year. Although this may sound like a good idea in theory, the reality is that biweekly plans often do more harm than good and so it is often better that you simply send payments on your own instead of using a biweekly payment company.
Biweekly Payment Plans Don’t Work As You Think
It is generally assumed by consumers that when they choose to use a biweekly payment company, and their payments are sent every other week that a portion of their payment would go to the principal and a portion would go to the interest. This would mean that half of your principal each month would be reduced, which would result in a lot less principal that you’d have to pay. However, this is not how biweekly programs work. Instead, when a lender takes your biweekly payment, they don’t evenly distribute it amongst your interest and principal. Instead, they will hold on to it until they are given the rest of the payment. Only then will they apply it to your loan. It is not clear why banks do this, however it takes the benefit of paying biweekly away.
Bi-Weekly Payment Companies Will Charge You a Fee
There are some banks and mortgage companies that will offer you a free biweekly payment program, however most do not offer one. The third party companies that will allow you to set a plan up will tack on a fee for using their service. This means that not only will you be subject to the fees that are already placed on your loan, but also you’ll have to deal with an extra one coming from the third-party biweekly payment company. If you really want to pay off your loan early then paying this extra fee isn’t the way to do it.
You May End Up making a Partial Mortgage Payment
Using a biweekly payment company could confuse your lender into thinking that you’re making a partial mortgage payment, which can cause unintended consequences. Your lender may return your payment due to the fact that it wasn’t the full amount, and so if you aren’t careful this could end up with you dealing with a credit ding and late fees. Even if they do hold on to your partial payment it likely won’t have any benefit for you, as loans are typically calculated every month, and so making half of the payment won’t result in you saving money.
You Better Off Doing It On Your Own
Even though it’s not recommended that you go through a third party in order to make your loan payments biweekly, it doesn’t mean that you can’t benefit from sending it in yourself. You can create your own program by setting up a savings account and then determining how much money you need to save up each month by dividing your total loan payment by twelve. After that, each month you can deposit the money into the savings account, and by the end of the twelve-month period, you will have enough money to make an extra payment. On top of this, you’ll also receive any interest that the savings account earned, which won’t amount to too much, but is better than simply letting your lender keep your money interest-free for two weeks.