Paying your car payment every two weeks (bi-weekly) means you'll make 26 half-payments, totaling one extra full payment per year, which pays off your loan faster and saves you significant interest by applying extra money to the principal, often shaving years off the loan and thousands of dollars in costs. While it can slightly strain your budget or require lender setup, the benefit is accelerated debt freedom, but check for prepayment penalties first.
Biweekly payments accelerate your mortgage payoff by paying 1/2 of your normal monthly payment every two weeks. By the end of each year, you will have paid the equivalent of 13 monthly payments instead of 12. This simple technique can shave years off your mortgage and save you thousands of dollars in interest.
Make biweekly payments
It will also help save on auto loan interest. This is because interest will have less time to accrue before you make a payment — and because you will consistently lower your total loan balance.
You make an extra payment each year so you pay off your principal faster, paying less interest. If you have a $20,000 five-year loan at 7.5% interest, bi-weekly payments could save hundreds of dollars in interest and months on the loan.
You'll save money.
Unless your loan has precomputed interest (more on that below), extra principal payments can help reduce the total amount of interest you'll pay.
Why do dealerships not want you to pay cash? Dealerships don't want you to pay cash because they don't earn a commission on arranging financing. If you qualify for in-house financing, the profits they miss out on increase since they don't have to work with a third-party lender.
Biweekly payments
By the end of each year you would have paid the equivalent of one extra monthly payment. This additional amount accelerates your loan payoff by going directly against your loan's principal. The effect can save you thousands of dollars in interest and take years off of your auto loan.
Despite the benefits, biweekly payments may have some drawbacks. Some mortgage lenders charge prepayment penalties or fees, which can diminish the financial benefit of paying extra toward your principal. Other lenders simply may not offer a biweekly payment option, which would require you to manually make payments.
The 50/30/20 rule is a simple budget guideline: 50% of your after-tax income for needs (like housing, groceries, and car payments/expenses), 30% for wants (dining out, entertainment), and 20% for savings and debt repayment. For a car payment, this means your total monthly car expenses (loan, insurance, gas, maintenance) should ideally fit within the 50% "Needs" category, with some experts suggesting car costs shouldn't exceed 10-15% of your income overall, making a modest car a "need" and luxury vehicles a "want".
Dave Ramsey's core car rules emphasize paying cash, avoiding new cars (unless you're a millionaire), keeping your total vehicle value under half your annual income, and using a strict budget, often suggesting the 20/4/10 rule (20% down, 4-year loan, 10% total car expenses) as a guideline if financing, but preferring no debt at all to avoid depreciating assets trapping you. He stresses buying reliable, used vehicles to prevent debt and build wealth.
Biweekly mortgage payments can save thousands in interest and build home equity faster. Biweekly payments can sometimes have setup fees or lead to a prepayment penalty. Borrowers with high mortgage interest rates benefit most.
How to pay off your car loan faster
Inefficient budgeting for car loan payments is a common error that can affect your finances for a long time. First-time buyers generally only focus on the monthly payment, often neglecting the total cost of ownership. Your ideal budget must include: Monthly loan payment.
Instead of submitting one fixed payment per month, which is standard for installment loans like car loans, split the payment into two and pay every two weeks. Make sure your lender allows this payment structure before moving forward. Doing this, you'll end up making one full additional payment per year.
But if you make biweekly mortgage payments, you will be making what equates to 13 monthly payments each year. Assuming a 6.5% interest rate and biweekly payments of $252, you would pay off your mortgage in a little over 24 years, or about six years early.
How long is a biweekly pay period? A biweekly pay period lasts 14 days and covers two full weeks of work. Employees receive their paychecks at the end of this two-week period.
The 20/3/8 rule is a car-buying guideline suggesting you put 20% down, finance for 3 years or less, and keep your total monthly car expenses to 8% or less of your gross income, helping to ensure you buy reliable transportation without overspending and can still invest in other goals like retirement. It's a tool to avoid being "underwater" on your loan (owing more than the car's worth) and to prioritize financial health over luxury vehicles.
For years, dealerships have been using a tactic called a “four square”—a sheet of paper divided into four boxes where the salesperson will write down your trade value, the purchase price of the vehicle you're buying, your down payment, and your monthly payment.
To get the best deal, avoid saying you love the car, are desperate for a vehicle, don't care about the total price (only monthly payments), or are an expert in your job/credit, as these reveal weaknesses; instead, focus negotiations on the out-the-door price, stay vague about your needs, and show you're willing to walk away to maintain leverage.