Category: 

What are Accelerated Payments?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
Helium is the only element that was discovered in space before it was found on Earth.  more...

December 10 ,  1948 :  The UN adopted the Universal Declaration on Human Rights.  more...

Accelerated payments are additional payments made on a debt. In some cases, the payments are tendered according to a schedule that is predetermined in accordance with acceleration option provisions within the contract that is governs the settling of the debt. The term is also applied to random additional payments that are tendered when and as the debtor chooses to do so, while still keeping up with the established payment schedule. Consumers may choose to make accelerated payments when they desire to retire a debt earlier than the originally projected settlement date.

With situations in which accelerated payments are scheduled in advance, the approach is often to include an extra payment at regular intervals throughout the life of the loan or other type of debt. For example, the lender and debtor may agree to a schedule that includes rendering one additional monthly payment every third month. This strategy makes it possible for the debtor to submit a total of sixteen monthly payments per year, rather than twelve, a strategy that can eventually trim years off the repayment of a mortgage.

Ad

With property purchases, the concept of a bi-weekly mortgage is another example of accelerated payments. In this scenario, the debtor renders a payment every other week. Although those payments are usually around half the amount of a single monthly payment, the result of this strategy is the cumulative amount paid on the debt during a calendar year is still more than the amount of twelve monthly payments. This is because the debtor will submit three payments during a couple of months each year.

A less formal approach to accelerated payments involves a debtor choosing to make extra payments on a loan or other debt when and as possible. For example, the debtor may submit an extra payment or two after receiving a bonus at work or upon receiving a return on income tax. Consumers sometimes determine they will make three or four extra payments on a mortgage, car loan, or other installment debt over the course of a year, with the plan of making those payments whenever resources allow, instead of actually drafting a rigid schedule to accomplish the goal.

With either application, the benefits of accelerated payments include retiring a debt early and also saving a significant amount on interest charges over the life of the loan. Using this approach with a mortgage, for example, could make it possible to retire a thirty-year mortgage in twenty to twenty-five years, depending on the frequency of those extra payments. Doing so means paying less for the property in the long run, and releasing the collateral sooner, making it possible for the owner to use the asset for other purposes without having to involve a creditor.

Ad

You might also Like

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email