Money Hack: Pay more often to repay a loan faster
The good ol' fortnightly payments trick.
First off, let's clarify this hack a bit: we are not saying that making more repayments means your loan will be repaid faster. While that's true, it's not so much a hack as it is simple maths. This hack has to do with how often you make repayments on your personal loan or home loan and the effect this can have on your repayment period.
Switch from monthly repayments to fortnightly repayments and you will repay your loan faster. How does this work, you ask? Well, if you repay your loan monthly you will make 12 repayments a year. However, if you repay your loan fortnightly you won't make twice as many repayments (24), but you will actually make 26 payments a year.
This is because there are 26 fortnights in a year but only 12 months – the wonders of odd month lengths!
The best part is you will be paying the same amount. Lenders will split your monthly repayment in two when you switch to fortnightly, putting no extra pressure on your budget. And you won't even notice the extra repayments.
Let's look at a quick example:
Bob and Barbara are paying off a $600,000 home loan over a 30-year term. They have been making monthly repayments of $2,864.49 for the past year and decide to switch to fortnightly repayments. They are now making repayments of $
By making this switch they:
- Repay their home loan 3
The same will work for personal loans, although the time shaved off tends to be months rather than years. Use this calculator to find out how much you could save.
finder money hacks is a bi-weekly roundup of the latest tips and tricks to improve your finances. Check back every Wednesday and Saturday for new hacks.