Biweekly Loan Calculator: Understanding Your Loan Payments

What is a Biweekly Loan?

A biweekly loan is a type of loan where payments are made every two weeks instead of once a month. This payment schedule results in 26 payments per year, effectively making one extra monthly payment annually compared to traditional monthly payment plans. This can lead to faster loan payoff and reduced interest over the life of the loan.

The Biweekly Loan Payment Formula

The formula used to calculate the biweekly payment for a loan is:

\[P = L\frac{r(1+r)^n}{(1+r)^n-1}\]

Where:

• \(P\) = Biweekly payment
• \(L\) = Loan amount
• \(r\) = Biweekly interest rate (annual rate divided by 26)
• \(n\) = Total number of biweekly payments

Step-by-Step Calculation Process

1. Calculate the biweekly interest rate: \[r = \frac{\text{Annual Interest Rate}}{26}\]
2. Calculate the number of biweekly payments: \[n = \text{Loan Term in Months} \times \frac{26}{12}\]
3. Apply the formula to calculate the biweekly payment.
4. Calculate total payment: \[\text{Total Payment} = \text{Biweekly Payment} \times \text{Number of Payments}\]
5. Calculate total interest: \[\text{Total Interest} = \text{Total Payment} - \text{Loan Amount}\]

Example Calculation

Let's calculate the biweekly payment for a $200,000 loan at 4% annual interest for 30 years:

1. \(r = \frac{4\%}{26} = 0.001538\)
2. \(n = 30 \times 12 \times \frac{26}{12} = 780\)
3. \(P = 200000 \times \frac{0.001538(1+0.001538)^{780}}{(1+0.001538)^{780}-1} = 438.54\)
4. Total Payment = $438.54 × 780 = $342,061.20
5. Total Interest = $342,061.20 - $200,000 = $142,061.20

Visual Representation

The green portion represents the principal ($200,000), while the red portion shows the total interest ($142,061.20) over the life of the biweekly loan.