Weekly vs fortnightly vs monthly repayments: does it matter?

When you take out a new personal loan, you’re often asked how often you want to make payments. Does it suit you to make your repayment weekly, fortnightly or monthly?

Sometimes, borrowers might make a choice without fully considering the impact of their decision. The frequency of your repayments can affect your budgeting, cash flow and the total amount of interest you pay over the term of your loan, depending on how it is structured.

Here, we’ll explain the differences and how you can choose the right option for you.

What is repayment frequency?

Repayment frequency refers to how often you make loan repayments. It is common for a loan to be paid back weekly, fortnightly or monthly. Usually, the total amount repaid remains the same, but the timing differs.

Weekly repayments

Weekly repayments are usually the smallest option, but the payments are made more frequently. This can work well for people who are paid weekly and like to make sure that all of their outgoings align with this. You make a higher number of payments over the term of your loan, so setting your payments a little higher than the minimum required could make a bigger difference over time, reducing the time it takes to clear the loan and the total interest paid, although you may incur early repayment fees, which need to be factored into any potential savings.

Weekly repayments may require a little more consistent cash flow management, because you need to make sure you’re always on top of what is due

Fortnightly repayments

Fortnightly payments are made every two weeks. This is a common option for New Zealand salaried employees, who are often paid fortnightly. You’ll see your balance come down a little faster than you would if you were paying monthly.

Monthly repayments

Monthly payments are only paid once a month, and they are the highest minimum payment required at one time. This may be a good option for people who like to budget a loan payment alongside other things that are paid once a month, such as utility bills or maybe a home loan.

How repayment frequency affects interest

More frequent repayments reduce the outstanding balance of your loan faster.  Depending on the structure of your borrowing, this may lower your overall interest cost if it is calculated on a lower balance over time.

Impact on budgeting and cash flow

It’s important that the structure of your personal loan works for you. When repayments work with the rest of your financial life, they are often much easier to manage. The wrong payment frequency may create cash flow pressure.

Weekly repayments often suit those who are paid weekly. Fortnightly repayments may align well with common pay cycles. Monthly repayments suit people with more structured monthly budgets or bills that fall once a month.

Does repayment frequency change the loan term?

It may be possible that more frequent repayments shorten the loan term, particularly if you calculate them by dividing a portion of the less frequent payment amounts.

For example, if your loan agreement states your required repayments were $500 a month and instead you pay $250 every fortnight, you’ll pay an extra $500 a year.

Paying extra reduces the time it takes to clear your loan, which usually means a smaller interest bill overall.
However, it’s a good idea to check whether there are any fees associated with paying a higher than required repayment amount or for making any additional repayments on your loan.

Flexibility and lender options

These are questions that it may be beneficial to ask while you’re thinking about taking out a loan. Not all lenders offer all repayment frequency options, and while some will let you change your frequency during the loan term, not every lender will. Some might charge a fee.

Try to get an understanding of what flexibility a lender offers at the outset. We can help you compare your options.

When to choose each option

Weekly repayments may suit:

• Borrowers who pay weekly want to spread the cost of the loan to match their pay cycle.
• Those who prefer smaller, regular payments.
• People who keep a relatively close eye on their financial situation from week to week.
  
  

 Fortnightly repayments may suit: 

• Borrowers who want to align their repayments with their income arriving in their bank accounts pay fortnightly.
• People who value a middle ground between frequent weekly repayments and the monthly option.

 Monthly repayments may suit: 

• Borrowers with a monthly income or budgeting systems, who like to pay all their bills once a month.
• Those who prefer fewer transactions and don’t check in on their finances as often.
• Those comfortable managing a higher payment, rather than the same total repayment spread out over more frequent payments
  
  

Common mistakes to avoid 

Watch out for these potential pitfalls when choosing a repayment schedule 

Not considering your income

It’s often helpful to try to align your repayments with the times that money is coming into your bank account. This helps to ensure there’s always sufficient there when it’s needed.

Missing payments

If your payments aren’t aligned, there may be more of a risk that you miss one. This could also be a concern if you set up payments to match income from one job but then change your employment and are being paid according to a new schedule.

Not confirming flexibility with the lender

It helps to know how your lender would respond to a request for changes. This will help you make informed decisions in the future.

Frequently Asked Questions (FAQs)

Does repayment frequency affect the total interest I pay?

It can do, depending on the settings of your loan

Can I switch my repayment frequency after taking out a loan?

This depends on the policies of your lender. We can help you look at your options.

Are there any fees for changing repayment frequency?

There may be. Again, this will depend on your lender. We can help you to work out whether it will be worth it.

Do smaller, more frequent payments make budgeting easier?

It depends on your personal circumstances. If you’re paid frequently or have other commitments that are paid frequently, you may find it more comfortable to deal with your loan in the same way.

Want to chat?

We’re here for all your personal loan questions. If you want to chat about repayment frequency or talk about any other aspect of your borrowing, get in touch with us today.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.