Using autopay for personal loan payments can help you save money and take one task off your monthly to-do list. There are plenty of benefits to paying your loans with automatic payments, including the fact that some lenders offer an interest discount when you do. Keep in mind that each lender is different, so you’ll have to check with yours to see if this is the case.
Wondering how you can use autopay to save money? Keep reading to learn how autopay works, the pros and cons of using autopay, and a few tips to help you use autopay for your personal loan.
What Is Autopay?
Autopay is a feature that many loan companies offer that allows you automatically have your monthly payment taken out of your bank account. When you set up autopay, you designate a date that payments will be withdrawn and the amount you’d like to pay. Your payments will continue to be automatically withdrawn from your bank account until you turn off autopay or pay off your entire loan.
Autopay is a feature that you can likely use with most of your monthly bills, but in the case of loans, it may actually save you money. That’s because some lenders offer a discount on your interest rate when you pay your monthly bills with autopay.
How Does It Work?
When you set up autopay on your loans, you designate a specific amount of money that will be automatically withdrawn from your bank account each month, as well as the date it will be withdrawn. This process is usually done on your lender’s website in your loan account.
In exchange for setting up these automatic payments, some lenders offer a discount on your interest rate — it’s usually about 0.25%. Depending on how much you owe, this discount could save you hundreds of dollars in interest over the life of your loan.
Let’s say you have a personal loan for $20,000 and a five-year repayment term. At an interest rate of 4%, you could expect to pay around $2,100 in interest. But if you qualified for a 0.25% rate discount, you would pay around $1,965 in interest. That’s a savings of $135.
While that may not seem like a considerable difference, some savings are better than none. Additionally, the savings will be even more pronounced the larger your loan and the higher your interest rate. For large loans, your interest rate savings could easily exceed $1,000. Use an installment loan calculator to see how much you could save.
What Are the Benefits of Autopay for Personal Loan Payments?
As you can see, using autopay for your loans can help lower your interest rate, saving you money over the life of your loan. And while that alone might be enough to convince you, it’s not the only benefit of autopay.
Autopay allows you to take a set-it-and-forget-it approach to bill paying. You don’t have to worry about forgetting to make your monthly payment or being in a situation where you can’t. As a result, autopay can help you avoid late fees or interest penalties.
Chances are that you already have enough things on your to-do list. Using autopay can help you take one thing off your list while making it easier to manage your budget.
What Are the Drawbacks of Autopay for Personal Loan Payments?
Using autopay to make your monthly loan payments has its advantages, but it’s also important to talk about the potential downsides.
Using autopay could create a situation where you overdraft your checking account. If you aren’t closely watching your bank account balance, it could be that when your lender goes to withdraw your automatic payment, there isn’t enough money in your account to cover it. Not only could this result in overdraft fees with your bank, but it could result in late fees if your lender isn’t able to withdraw enough to cover your entire payment.
To avoid this situation, you might prefer to avoid autopay if you have an irregular income and don’t know for certain you’ll have the money in your account. You may also choose not to use autopay if you’ve lost your job or don’t keep a buffer in your checking account for unplanned expenses.
Tips for Using Autopay
Using autopay can be an excellent way to save both money and time. Let’s talk about a few additional tips to keep in mind when you use autopay to make your monthly loan payments.
- Sign up correctly. Some banks allow you to set up automatic payments right from your checking account to be sent to your lenders each month. However, you may need to sign up for autopay on your lender’s website or using its smartphone app to qualify for the interest rate discount. Contact your lender if you aren’t sure how to correctly sign up to gain the discount.
- Track your autopay date. Even though the money is coming out of your bank account automatically, be sure you track your payments so you know when the money comes out and can ensure that your payment comes out of your account as planned.
- Set up account alerts. Along with tracking your automatic payments, set up automatic alerts to be notified if your bank account balance dips below a certain level. Doing so can help avoid a situation where your lender tries to pull your automatic payment, but there isn’t enough money in your account to cover it.
- Update your banking information. If you switch banks or get a new debit card number, be sure to update your autopay information with your lender. Otherwise, you could be subject to late fees if your lender isn’t able to pull your automatic payment.
Autopay Frequently Asked Questions
Can you save money with autopay?
Yes, autopay can save you money by helping you qualify for interest rate discounts from your lenders. It can also help you to avoid late fees by ensuring you don’t forget to make your monthly payments.
Does autopay hurt your credit score?
No, autopay doesn’t hurt your credit score. In fact, it can help your credit score by ensuring you make your monthly payments on time. Payment history is the most important factor in determining your credit score, so making regular on-time payments goes a long way, regardless of whether or not they’re made with autopay.
Should you use autopay?
Autopay can be an excellent tool to help you save money, save time, and avoid missing your monthly loan payments. For many borrowers, autopay is a great idea. But if you have an irregular income, have recently lost your job, or for another reason don’t know for sure the money will be in your account, then autopay may not be right for you.
Can you stop autopay anytime?
You may need to turn off autopay if you’ve lost your job or have run into another financial emergency that will make it difficult to make your loan payment. In that case, you can stop your automatic payments by logging into your online account. But be sure to reach out to your lender if you don’t think you’ll be able to pay your bill. They may be able to work with you to avoid late fees and delinquent loans.
