It really pays to pay your loans more frequently than scheduled...

[3boymthr]

I know all you budget boarders will appreciate this: When we first bought DH's truck the company we got the loan thru was not "user friendly". I admit it I'm not always on top of the whole mailing on time thing. Which is why I pay 90% of my bills electronically (just those random bills like water, taxes, etc are paid by check). The only way to pay the payment electronically was to set it up in advance to pay it on a specific date in the month or weekly on whatever day of the week I chose. I asked them to split the payment into four equal payments and went with the weekly option. This meant that we made an extra payment a year. It's totally been worth it. I got the notice in the mail today, as of this week's payment the loan is paid off 8 months earlier than if we'd paid the payments on a monthly basis.

 

[anna08]

Congrats! that's awesome and good idea to share. We make one extra mortgage payment a year, but I like your way better - seems less painful.

 

[Kachina]

'Gratz! It definitely helps!

A lot of mortgage companies these days are offering bi-weekly payments. We signed up for this, and doing things this way will get our mortgage paid off 7 years earlier than it would otherwise be paid.

 

[Jimsig]

I have seen this in quite a few "Ways to lower your debt" articles. By paying it more often, for the same total amount each month, you are also reducing the interest on the loan as well and paying less. It all comes down to how they figure out what to base interest on. I may not have this 100% but say you owe $10,000 and make a $250 payment each month. So you now owe $9,750 plus interest which says is say $15 for a total of $9765. The next month though your interest is based on something like $9,875, because it based on a median according to a formula or something like that. If you pay $125 on the 15th and another $125 on the 30th you have changed what the median owed is acording to their formula so it may be based on say $9855. So you now owe $9750 plus interest which is now say $12 for a total of $9762, because the interest is lower. Add that up over the life of the loan and you save a bit of money, especially if it is a mortgage or a larger type lona like a car or even credit card debt.

I thought I responded to a post here a while back about something similar where I probbaly explained it a lot better but can't find it. Hope it makes sense.

 

[barkley]

along the same line-if you belong to or have eligibility to join a credit union check out the deals they have if you do prescheduled electronic payments on car loans.

the one we belong to has rates much lower than traditional banks and vehicle finance companies, and the kicker is if you set up automatic payments from your checking or savings account they knock 1/4 percent of the interest rate

we do the automatic payment option on our mortgage, and what's made another huge difference is when we re-financed we had them keep the payment at the original payment amount plus an additional amount. when tax time rolls around we throw our refund at the balance as well. it realy makes your heart skip a beat when you see that balance lowering much faster

 

[Viva Las Disney]

I bought my house 3 years ago and when I set up my online payment there was a calculator that showed how extra principal only payments affected the life of the loan, I settled on an extra $190 a month because it will take 10 years off my 30 year loan. I can't remember the exact amount but it was close to $100,000 in saved interest costs over the life of the loan.

 

[Swimalie]

A tip I got from Clark Howard was to take the monthly payment you owe, say $1200 for easy calculations. Divide it by 12, so $100 and add that amount on as principle each month. It will knock 7 years off a 30 year fixed mortgage with little effect on the person.

 

[manning]

Big,and I mean big plus in paying off early you save a ton of money in interest.

Years ago I had a 30 yr mortgage at 12% I refinanced for 9% at 15 years and paid that off in half the time. I could have just about bought another new house for cash with what I saved.