## Calculating Biweekly Payments

This calculator can be used to demonstrate the advantages of a biweekly (every two weeks) car loan. The calculator needs a total of three inputs, including:

- The car loan value, which is how much money is being lent to the borrower
- The term of the loan, stating in years. This is the timespan over which the loan is repaid the lender
- The annual interest rate on the loan, which is the cost to borrow, sometimes referred to as the finance charge or fee

The calculator then provides the user with three sets of outputs:

- The payment made to the lender, under the conditions of both a monthly and biweekly repayment plan
- The effective term of each loan type, along with the savings achieved with a biweekly repayment plan, stated in months saved
- The total payments made by the borrower for both the monthly and biweekly repayment scenarios, along with the money saved by making biweekly payments

### Making payments every two weeks (biweekly)

We are calling this a biweekly payment calculator and just to be clear; the term biweekly can refer to payments being made twice a week or payments being made every two weeks. We are using this second definition (every two weeks). The advantages of biweekly payments are twofold:

- Making payments on a biweekly basis means the borrower will be making twenty-six payments in a calendar year. This is equivalent to making thirteen months of payments instead of twelve. By doing so, the borrower shortens the term, or length, of the loan since the payments were based on twelve monthly payments per year.
- The second advantage of making biweekly payments has to do with interest charges, also known as financing costs. Since each payment results in a decrease in the outstanding principal of the loan, the accelerated pace of repayment translates into lower financing costs too.

Another benefit of biweekly payments has to do with pay frequency. Since businesses often pay their employees every two weeks, repaying a loan on this same schedule can be convenient too.

### Interpreting the results of this calculator

The biweekly payment result produced by the calculator is exactly one half of the monthly payment. This is intentional, since the assumption is the objective of making payments every two weeks is to accelerate the pay down of a conventional monthly payment plan. The term (months) section of the calculator’s results shows the user how much time is saved by making biweekly payments. This savings is achieved through the two mechanisms mentioned earlier – the borrower is making the equivalent of thirteen monthly payments each year and since the principal is also getting repaid faster, a larger proportion of each subsequent payment is being applied to the loan’s principal and not the finance charge.

The last set of data are the total of all payments made through both the monthly and biweekly repayment schedule. The savings is found by subtracting the total biweekly payments from the total monthly payments. The two variables that really drive the savings are the interest rate on the loan and the term of the loan. Making biweekly payments for loans of short duration and low interest rates will achieve relatively low savings, while making biweekly payments on loans carrying higher interest rates and longer terms will achieve relatively high savings.