What is payment frequency?

Interest is typically calculated daily on the outstanding balance and charged monthly. More frequent repayments bring the average daily balance down sooner, so less interest accrues. The bigger effect comes from the half-monthly method: paying exactly half the monthly repayment every two weeks produces 26 payments a year, the equivalent of 13 monthly repayments instead of 12. That extra payment each year reduces the principal faster.

Weekly repayments set at a quarter of the monthly figure work the same way, with 52 payments adding up to 13 monthly equivalents, and the saving over fortnightly is marginal. Either way the extra annual payment shortens the term, by years on a 30-year loan and by less on a three-year car loan. A true fortnightly repayment, recalculated over 26 periods, saves far less.

Matching repayments to your income cycle makes budgeting automatic and reduces the chance of a missed payment. Check whether the lender charges a transaction fee per repayment, because that can eat into the interest saving. Remember that two months each year contain three fortnightly payments rather than two.

On a home loan you can usually change frequency mid-term by contacting the lender or using the online portal, and the new schedule normally starts from the next billing cycle. Fixed term asset finance is different: car loans, chattel mortgages and equipment contracts generally set the frequency at the start and hold it for the life of the contract, so check what yours allows. When a change goes through, update your direct debit to the new amount and date. Each loan account can have its own frequency, and your broker can model the total cost of each option before you commit.

Almost all home loan lenders offer weekly, fortnightly and monthly, and that is where frequency has the biggest dollar impact because balances are large and terms long. Car loans and personal loans usually offer monthly and fortnightly, with weekly less common. Business loan options vary: some facilities are monthly only, others allow fortnightly, especially at smaller sizes.

Equipment and asset finance is typically monthly to match business accounting cycles, and some lenders offer quarterly repayments for seasonal businesses. On a line of credit, interest is usually charged monthly on the drawn balance and repayment timing is more flexible. When comparing loans quoted at different frequencies, convert each to an annual total by multiplying monthly by 12, fortnightly by 26 or weekly by 52, and confirm the available frequencies before signing.