What are Accelerated Payments? (with pictures)

Malcolm Tatum
Malcolm Tatum
Accelerated payments can help debtors avoid large interest charges.
Accelerated payments can help debtors avoid large interest charges.

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.

Accelerate payments may not be allowed on certain kinds of loans.
Accelerate payments may not be allowed on certain kinds of loans.

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.

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.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

You might also Like

Readers Also Love

Discuss this Article

Post your comments
Login:
Forgot password?
Register:
    • Accelerated payments can help debtors avoid large interest charges.
      Accelerated payments can help debtors avoid large interest charges.
    • Accelerate payments may not be allowed on certain kinds of loans.
      Accelerate payments may not be allowed on certain kinds of loans.