How to Calculate Biweekly Loan Payments
Even the most standard of loans can be confusing and counterintuitive. It may seem at first glance that the interest on a $1,000 loan at 5 percent should only cost you $50, but in reality it is usually much more. And less standard loans, such as biweekly loans, can add quite a bit of confusion. The good news is that biweekly loans are not much more complicated than monthly or bimonthly loans.
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Instructions
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Write down the total amount of the loan. This is called the principal. For the sake of our example, the principal is $10,000. We'll call this number A.
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Multiply 24 by the number of years in your loan. Although in reality you will be making 26 payments a year, each payment will be the equivalent of one-half a monthly loan payment, as if you were making paying 24 payments a year. This is the main benefit of biweekly loans, as you pay the same amount every month but end up owing less interest over time. Our example loan is for two years, so 2 times 24 equals 48. We'll call this number, 48, B.
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Convert the loan's annual interest rate to a decimal point by dividing it by 100. Our example has a 5 percent annual interest rate, so 5 divided by 100 equals 0.05. Divide this number by 24 to determine the interest rate per pay period. 0.05 divided by 24 equals about 0.00208. We'll call this number, 0.00208, C.
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Calculate C (1+C)^B. In our example, this would be 0.00208 (1+0.00208)^48. This can be simplified to 0.00208 x 1.00208^48. 1.00208 to the 48th power is approximately 1.10487. 0.00208 x 1.10487 equals about 0.0022981. We'll call this number, 0.0022981, D.
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Calculate (1+C)^B-1. In our example, this would be (1 + 0.00208)^48 - 1. This can be simplified to 1.00208^48 - 1. 1.00208 to the 48th power is approximately 1.10487, as we saw earlier. 1.10487 - 1 = 0.10487. We'll call this number E.
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Calculate D/E. In our example, this would be 0.0022981 divided by 0.10487, which equals about 0.021913. We will call this number F.
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Calculate A x F. In our example, A would be the principal amount, 10,000, so the equation would be 10,000 x 0.021913, which equals 219.13. This number, $219.13, is your biweekly loan payment.
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Tips & Warnings
If you don't have a calculator that has an exponent function, use the Windows Calculator utility. By switching to the Scientific calculator view, you can use the "x^y" button.
Although paying biweekly will decrease the overall amount that will have to be paid, keep in mind that having to make payments more than twice as often may cause some short-term financial strain.
