Biweekly payment plans for installment loans can be quite beneficial for borrowers. For example, it can make budgeting more convenient for those who get paid biweekly. Moreover, such plans usually feature extra payments on the principal of the loan, so they are often referred to as "loan acceleration programs," helping borrowers pay off their mortgages sooner.
Nearly all such plans are actually simulated biweekly payment programs, since most lenders cannot accept more than one payment per month because of legacy billing systems which generate a new bill after each payment and assess late fees for any amount less than the expected full payment. Third-party service companies can debit a borrower’s account every two weeks, escrowing the funds and making monthly payments to the lender with a notation that any excess funds be credited to principal only.
To make a biweekly service plan work, the borrower must be in a secure enough financial position to make thirteen full loan payments each year instead of the typical twelve, so these programs may be difficult for a borrower on a fixed income. Twice each year, the borrower has an extra half-payment deducted, which could place a strain on many budgets. Check to make sure that the extra debited amounts are credited to the loan for the month they are paid, as some providers hold on to these funds until the end of the year to earn interest for themselves at the borrower's expense.
Why Use a Service Provider?
Why should a borrower work with a service provider? Simply put, very few people can reliably stick with an extra payment plan on their own. There is certainly no harm in trying it out first without a provider, but most borrowers find it easier to use a go- between to make sure they can commit to the program.
Using a service provider takes some of the pressure off of the borrower. The service provider automatically withdraws extra payments, much like a forced savings plan's payroll deductions. Such services can also be quite convenient for the borrower, as electronic loan payments mean fewer checks to write and no worries about postal mishaps.
Evaluating Service Providers
Before contracting with a service provider, be sure to consider these factors:
Enrollment fees are unnecessary. Most lenders offer biweekly service plans requiring a set-up charge of $295-$495, but a few quality providers do not charge an enrollment fee.
Biweekly service providers typically charge a transaction fee of $3.50-$5.00 per debit, and shopping for a plan with lower fees makes sense. Theses fees can add up to over $100 per year, but since most borrowers can save hundreds of thousands of dollars in interest and pay off their loans much sooner, it can still be a great deal.
Always check for hidden fees. There may be a fee charged for changing plans, or for having insufficient funds available when a debit is scheduled, or for cancelling the program.
Learn more about how providers treat their customers. Ask whether borrowers can access account information online and make changes to schedules directly, or if they have to contact a call center.
Remember that biweekly service plans are not for everyone. Before signing up, try paying extra principal on a regular basis on your own. If your budget doesn't permit you to make regular extra payments, it may be simpler to save money in a savings or money market account and pay a lump-sum extra payment now and then. If you can't make it work on your own, a little research can help you choose a provider offering the best service at the lowest cost.