Author Topic: Rate reductions for automatic payments on loans?  (Read 3859 times)

SyZ

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Rate reductions for automatic payments on loans?
« on: July 28, 2016, 07:29:43 PM »
I'm eligible for -.25% on each of my 3.4% and 2.65% loans ... but what's the catch? Obviously the bank gets something, as they don't get any monetary gain just by having me pay automatically. Hidden fees? Inability to cancel?

Goldy

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Re: Rate reductions for automatic payments on loans?
« Reply #1 on: July 28, 2016, 07:55:23 PM »
I always assumed the rate reduction was due to the stats that loans on auto payment were less likely to default.

Longwaytogo

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Re: Rate reductions for automatic payments on loans?
« Reply #2 on: July 28, 2016, 08:01:24 PM »
I always assumed the rate reduction was due to the stats that loans on auto payment were less likely to default.

Yeah, I assumed the same.

SyZ

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Re: Rate reductions for automatic payments on loans?
« Reply #3 on: July 28, 2016, 08:05:13 PM »
So there's no reason to not do it.

Since it saves me ~$100 over the next 5 years for paying no differently.

Longwaytogo

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Re: Rate reductions for automatic payments on loans?
« Reply #4 on: July 28, 2016, 08:07:49 PM »
So there's no reason to not do it.

Since it saves me ~$100 over the next 5 years for paying no differently.

I mean I guess read the fine print?

But I've always done it when offered a rate reduction (.25% with SoFi for ex.)

sisca

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Re: Rate reductions for automatic payments on loans?
« Reply #5 on: July 29, 2016, 06:16:26 AM »
I am not that familiar with US banking regulations, but apart from statistically reducing defaults, it could also affect how a banks core capital ratio is calculated. The bank would probably be less sensitive to liquidity shocks.

Metric Mouse

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Re: Rate reductions for automatic payments on loans?
« Reply #6 on: July 29, 2016, 06:26:33 AM »
I am not that familiar with US banking regulations, but apart from statistically reducing defaults, it could also affect how a banks core capital ratio is calculated. The bank would probably be less sensitive to liquidity shocks.

Good point. I assumed it also allowed them to reduce staff time to open payments and enter them into the system manually.

Drifterrider

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Re: Rate reductions for automatic payments on loans?
« Reply #7 on: August 03, 2016, 05:18:51 AM »
I'm eligible for -.25% on each of my 3.4% and 2.65% loans ... but what's the catch? Obviously the bank gets something, as they don't get any monetary gain just by having me pay automatically. Hidden fees? Inability to cancel?

Saves them the cost of mailing you a statement and having to handle the check each month.  Plus, with automatic payments, you are less likely to be late.

mskyle

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Re: Rate reductions for automatic payments on loans?
« Reply #8 on: August 03, 2016, 05:32:05 AM »
My student loans have been on autopay for 10 years, and it is not difficult to cancel (in fact, I've cancelled and re-upped multiple times because they have no interface for changing banks). Totally common, and free money if you're not worried about the payment bouncing.

Much Fishing to Do

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Re: Rate reductions for automatic payments on loans?
« Reply #9 on: August 03, 2016, 05:53:15 AM »
I always assumed there is some kind of grace period on most loans between when a payment is "due" and when you'd get hit with a penalty, and the auto-pay gets them the money on that very earliest day its due every time, which I assume in mass really makes a difference for a company's daily cash on hand that is in this sort of business.  Though the stopping of mailing of invoices & receiving mailed payments/processing checks mentioned above sounds like a good reason too. 


2buttons

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Re: Rate reductions for automatic payments on loans?
« Reply #10 on: August 03, 2016, 08:35:41 AM »
Yes. Do it. I did it with Sallie Mae. Its free money for paying on time, which you will do anyway. Now get into the business of getting that monkey off your back.

Dancing Fool

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Re: Rate reductions for automatic payments on loans?
« Reply #11 on: August 03, 2016, 09:31:40 AM »
I work for a bank that offers it on our loans, can confirm that it's because of reduced operational costs (you're signing up for an EFT through the ACH, cheapest payment option to handle) and reduced default risk.

Unlikely that there's any fine print you need to be wary of, but I'd still recommend you do a cursory look just to be safe.

Parkingmeter

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Re: Rate reductions for automatic payments on loans?
« Reply #12 on: August 03, 2016, 09:40:42 AM »
Some banks allow payment via credit card, sometimes only over the phone. You can generate rewards (2% cash back or whatever you prefer).  It's somewhat rare and tends to be only the smaller regional banks or credit unions. Only worth it if they don't charge a fee.

TheAnonOne

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Re: Rate reductions for automatic payments on loans?
« Reply #13 on: August 03, 2016, 01:18:19 PM »
My student loans have been on autopay for 10 years, and it is not difficult to cancel (in fact, I've cancelled and re-upped multiple times because they have no interface for changing banks). Totally common, and free money if you're not worried about the payment bouncing.

10 years? Are you going to pay them off?

Metric Mouse

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Re: Rate reductions for automatic payments on loans?
« Reply #14 on: August 04, 2016, 04:40:47 AM »
My student loans have been on autopay for 10 years, and it is not difficult to cancel (in fact, I've cancelled and re-upped multiple times because they have no interface for changing banks). Totally common, and free money if you're not worried about the payment bouncing.

10 years? Are you going to pay them off?

Maybe they re-financed to reduce the rates?

clarkfan1979

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Re: Rate reductions for automatic payments on loans?
« Reply #15 on: August 04, 2016, 08:42:18 AM »
I agree with the earlier comments in that people who sign up for automatic withdrawal are less likely to default.

If your loans have different rates, I would sign up for the lowest monthly payment option. Then when you make an "extra payment" you get to select the higher rate loan.

HipGnosis

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Re: Rate reductions for automatic payments on loans?
« Reply #16 on: August 04, 2016, 09:33:06 AM »
Is this you setting up the auto-payments with your bank or the lender setting up auto-withdrawls from your bank account?
I don't authorize withdrawls by anyone, for anyone. 

mskyle

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Re: Rate reductions for automatic payments on loans?
« Reply #17 on: August 04, 2016, 11:04:06 AM »
My student loans have been on autopay for 10 years, and it is not difficult to cancel (in fact, I've cancelled and re-upped multiple times because they have no interface for changing banks). Totally common, and free money if you're not worried about the payment bouncing.

10 years? Are you going to pay them off?

At 2% interest (tax-deductible interest, no less)? I'm not in a rush. It's currently $8000. I could pay it off at any time. But then I'd have less money to invest or pay down a mortgage.

Which is to say, yes, I consolidated and refinanced in 2005-2006.
« Last Edit: August 04, 2016, 11:11:26 AM by mskyle »

Chris22

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Re: Rate reductions for automatic payments on loans?
« Reply #18 on: August 04, 2016, 11:19:39 AM »
I'm eligible for -.25% on each of my 3.4% and 2.65% loans ... but what's the catch? Obviously the bank gets something, as they don't get any monetary gain just by having me pay automatically. Hidden fees? Inability to cancel?

Saves them the cost of mailing you a statement and having to handle the check each month.  Plus, with automatic payments, you are less likely to be late.

I autopay several things, they all still send a monthly statement that says "this amount to be deducted from your account on DUE DATE". 

Autopay is great for fixed things (car loans, student loans) but for variable payments I like to pay it on my own because I'm always worried they will jack it up somehow.  Comcast and VZW in particular at bad at billing.  Save your comments, they still provide the best product even though the customer service and billing are sub-par.

Jack

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Re: Rate reductions for automatic payments on loans?
« Reply #19 on: August 04, 2016, 11:34:07 AM »
Autopay is great for fixed things (car loans, student loans) but for variable payments I like to pay it on my own because I'm always worried they will jack it up somehow.  Comcast and VZW in particular at bad at billing.  Save your comments, they still provide the best product even though the customer service and billing are sub-par.

I like to set those up through my Giant Monster Mega Bank's online banking interface. If the creditor is sophisticated enough to be compatible*, they can send e-bills so that the bank knows how much this period's variable payment is, then you can choose from several options of how much to pay: the total account balance, the amount due (i.e., the minimum payment in the case of a loan or credit card-type account), a fixed amount, or the amount due up to a maximum you set (which is the option that's helpful for asshats like Comcast). You can also set it such that it will autopay if the amount billed is as expected, but email you if the bill is unexpectedly large.

(* My water/sewer service is provided directly by the city instead of a privatized utility, and is the only creditor I have that is both variable and not compatible with e-bills. I can set them up as a "pay to" account, but there's no way for them to tell the bank how much I owe so I have to manually receive my paper bill and type the amount in. It also means that's the only bill I occasionally forget to pay and get charged late fees for. It's infuriating!)

gardeningandgreen

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Re: Rate reductions for automatic payments on loans?
« Reply #20 on: August 04, 2016, 01:55:44 PM »
Coming from the place of working in the bank and originating those loans. It is true that the reason that we have the auto pay set up and give you a reduction is because it costs us less and is a lower risk for the bank. Interest rates are partially set because of risk. If you are a lower risk then the rate is lower. Also do read the fine print. There may be a fee for canceling the auto pay. For most people that isn't a huge deal but if it is to you make sure you are aware of it.