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Aside from loan amount, there are some other important details you need to choose when applying for a loan: payment frequency and loan term. But what do these mean and how do they affect your loan? We partnered up with Fairstone to help explain how payment frequency and loan terms work for help with loans in Canada.
What is payment frequency?
Payment frequency refers to your loan repayment schedule. Most loan companies give you a choice between monthly, semi-monthly and bi-weekly loan payments.
You only make one loan payment a month, totalling twelve payments a year.
You’ll make two loan payments a month, totalling twenty-four payments a year.
You’ll make a loan payment every other week, totalling twenty-six payments a year (that’s two extra payments compared to semi-monthly payments).
How does payment frequency affect your loan?
Generally, a more frequent loan payment schedule (bi-weekly payments) allows you to pay off your loan faster, which ultimately saves you money on interest. On the other side, a less frequent payment schedule (monthly payments) tends to make your loan payments more affordable and manageable, as you’ll be paying less toward your loan overall each year. Choose your payment schedule based on your priorities. If you can afford to spend more on loan repayment, bi-weekly loan payments are a great option. If you want to keep loan payments more manageable, stick with semi-monthly or monthly payments.
You can also check out this article that explains different loan payment options in-depth.
What is a loan term?
You and a lender will also agree on your loan term, which is the set timeframe in which you’ll repay your loan. Depending on your lender and loan type, during the term, your interest rates and payments are fixed, meaning they won’t change over the life of term.
How does loan term affect your loan?
A shorter loan term will increase your loan payment amount, as you’ll be paying off your loan faster. However, you’ll pay off your loan quicker and pay less interest over time. A longer loan term will decrease your loan payment. If you can afford a higher loan payment, take advantage of the benefits of a shorter term. However, if you’re looking for a bit more flexibility in your budget, you’ll likely benefit from a longer loan term.
Calculate how payment options and terms will affect your loan payments
Try Fairstone’s free loan quote tool to understand how your desired payment schedule and loan term will affect your payments. Simply choose your loan details and they’ll give you an estimate of what your payments might be in just a few minutes.
As you can see, there are important decisions to make when applying for a loan other than how much you’re looking to borrow. By choosing the right payment frequency and loan term, you can better stay in control of your loan and on track with payments.