When you take out a small business loan (or any other type of loan for that matter), one of the most important decisions you’ll have to make is with regards to your payment plan. Monthly payments are the most common, but that might not be your only choice.
You may have the option to choose a monthly, weekly, biweekly, or even daily repayment plan. Moreover, you’ll have to choose between fixed and variable payments
So which option should you choose?
It can be difficult to decide which repayment plan is best for you. Each has different advantages that may make it the right choice for different people.
In my experience, I’ve found that fixed monthly payments are often the best choice as they offer predictability and are easier to budget for—but what’s right for one isn’t necessarily right for all.
Let’s take a look at the different types of repayment plans and why fixed monthly payments might be the best option for you.
Other Credit Payments: Monthly vs. Daily, Weekly, and Biweekly
What about other types of repayment schedules?
You might see people recommend paying off your small business loan with daily, weekly, or biweekly payments rather than monthly payments.
Proponents of these repayment schedules might say that this can help you reduce the total amount of interest that you pay and can improve your credit score; however, this isn’t always true.
While more frequent payments can help you save on the interest that is calculated on a daily basis (as is the case with credit cards), this doesn’t apply to business loans that calculate the interest on a monthly basis.
Moreover, more frequent payments don’t actually boost your credit score. While it is important to make your payments on time, making more frequent payments won’t give you any extra credit.
More frequent payment would help you pay a loan faster. Why? Well, let’s take monthly payments vs weekly payments to explain it.
A year has 12 months, which means that with a monthly payment schedule, you’ll make 12 payments. But the year has 52 weeks, and in a weekly payment schedule, that means, of course, 52 payments.
Now, think about the math: 1 month has 4 weeks, which means that 12 equals 48 weeks. With a monthly payment schedule, you only pay for 48 weeks. Meanwhile, with a weekly payment schedule (52 weeks), you get to make an extra 4 payments that help pay your debt a bit faster.
That being said, take a look at this table to see the pros and cons of daily, weekly, biweekly, and monthly repayment schedules:
Ultimately, when looking at the difference between monthly payments and more frequent loan payments, the main difference comes down to predictability and flexibility.
While businesses with plenty of capital might opt to make more frequent loan payments in order to get the debt off the books, fixed monthly payments are great for small businesses that prioritize predictability and financial stability.
Camino Financial does not charge prepayment penalties, however, many other lenders do.
Fixed vs. Variable Payments
In addition to choosing between monthly, daily, weekly, and biweekly repayment plans, it’s also important to understand the differences between fixed and variable payments and how they can impact small businesses.
Fixed payments and variable payments each offer certain advantages that may be preferable for some but not for others. Let’s take a look at these differences so that you can determine which one best suits your needs.
Like I mentioned before, the primary advantage of fixed payments is flexibility. This also happens to be the primary weakness of variable payments.
Variable payments can, in some cases, reduce the total interest that you’ll have to pay on your loan and help you pay off your loan more quickly; however, these advantages come at the cost of easy financial planning.
Not to mention, these benefits aren’t guaranteed.
As I said before, frequent payments can help you save on credit card interest or interest from other types of revolving debt, but they won’t save interest on a business loan.
Fixed Monthly Loan Payments Are Here to Help Your Finances
There’s a reason fixed monthly payments are what most business owners choose when they take out a small business loan and why Camino Financial offers fixed monthly payments—they are predictable and easy to budget around.
Fixed monthly payments mean that not only your payments remain the same throughout the loan term, but so will your interest rates.
This is particularly helpful for small businesses that often need to plan their finances well into the future. Small business budgeting often involves budgeting for major future expenditures, which is easier when your other expenses are consistent.
Also, by knowing exactly what you’ll have to pay and having a whole month to gather the money, there are less chances that you won’t be able to make that payment.
On the other hand, variable monthly payments can help you pay down your loan more quickly; however, these types of payment plans are often unpredictable and difficult to factor into a small business budget.
Camino Financial offers small business loans with fixed monthly payments to help small business owners get the financing they need while still being able to effectively manage their finances.
Fixed monthly payments are a simpler and more predictable alternative to more frequent payment plans.
Monthly payments are the best alternative
Before taking out a small business loan, it’s important to understand the advantages and disadvantages of fixed monthly payments versus variable, daily, weekly, or biweekly payments.
While more frequent can offer some advantages, these benefits aren’t guaranteed. Meanwhile, fixed monthly payments offer a flexible, predictable, and simple way to pay off your loans while still being able to easily budget for the future.
Interested to see how much your fixed monthly business loan payments would be? Calculate your fixed monthly payments for a loan with Camino Financial.