Anytime you take out a loan, the lender will provide you with a comprehensive loan repayment schedule. Don’t let this document get lost in the shuffle of papers as you sign off on the loan, but take a close look at it so you fully understand when you’re making payments, how much they are, and what they’re going toward. Understanding the proposed schedule also may help you understand why a bi weekly schedule makes so much more sense for many people.

1. Differentiate Between Principal and Interest Payments

Each payment you make is divided between two major costs: principal and interest. Especially early in your repayment term, interest is the major part of each payment. This is because your loan balance is still very high and lenders calculate interest based on your interest rate and the amount you still owe at the beginning of the month. The rest of your payment goes toward principal, which is the amount you borrowed. Every month, the principal and interest payments add up to your total monthly payment, but the amounts going to each will change every month because you owe less interest each month.

2. Note How the Balance Decreases on the Loan Repayment Schedule

One column on your schedule should show the remaining balance on your loan after each payment. If you look at this number, you’ll notice that it decreases very slowly at first. This is because so much of each payment goes toward interest, which leaves very little to go toward principal. As you get toward the end of your loan repayment schedule, your principal and interest payments will even out, and eventually you’ll be paying mostly principal with each payment.

3. Compare the Schedule to a Bi Weekly Schedule

Once you understand your regular repayment schedule, you’re ready to take a look at other alternatives. In particular, you should examine how a bi weekly schedule helps you pay off your loan more quickly. On this schedule, most months you’ll just make two half payments and be tracking right with the regular schedule. However, two months out of the year, you’ll end up making three half payments. This third half payment goes straight toward principal repayment, which significantly decreases your loan balance. After you’ve diverged from the schedule on your loan balance, you’ll be interested to see how this affects future payments. Because your balance is lower, you owe less interest the next month and can pay more principal. This reduces your loan balance even more than on the original loan repayment schedule, which leads to even smaller interest payments each month in the future and big savings for you!