4 Reasons To Put Your Student Loan Payments on Autopay
Written by
Choncé Maddox
Edited by
Chris Cluff
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Student loan repayments can feel overwhelming from juggling due dates, interest rates and your budget for the month. That’s where autopay comes in handy. Many loan servicers offer the option to automate your payments, making it easier to manage your loans.
But is autopay the right fit for everyone? Let’s explore four key reasons you might want to set up autopay for your student loans and four reasons you might think twice before doing so.
Also see why you should not pay off your student loans early, according to a loan expert.
Interest Rate Reduction
One of the most attractive perks of setting up autopay is the potential for an interest rate reduction. Many student loan lenders (both federal and private) offer a 0.25% to 0.50% discount on your interest rate simply for enrolling in autopay.
That small percentage might not seem like much; but, over the life of a loan, it can add up to significant savings.
For example: If you have a $30,000 loan at a 5% interest rate over 10 years, you’d save roughly $438.40 in interest payments with a 0.25% rate reduction. Those savings can grow even more if you’re paying down a larger balance or end up deferring your loan at any point and extending the repayment term.
Avoid Late Fees
Late payments on student loans can result in fees. Not only that, late payments could damage your credit score, which affects your ability to qualify for credit cards, home loans, and even job opportunities in some cases.
By setting up autopay, you can ensure that your payments are processed on time, every time. So there’s no more worrying about missed due dates. Think of it as a “set it and forget it” safeguard for your financial health.
Simplicity and Convenience
Autopay simplifies the process by automating your student loan payments, giving you one less thing to worry about each month.
Whether you’re working 9 to 5, studying full time or dealing with hectic family responsibilities, autopay takes the mental load off your plate. You’ll gain peace of mind knowing your loans are being paid, even during your busiest weeks.
Helps With Budgeting
Autopay does more than just save time. It makes budgeting easier as well. With fixed payment amounts deducted at the same time each month, you can adjust your spending accordingly. You’ll know exactly how much money is going toward your student loans and when, giving you a clearer picture of your overall financial plan.
For those trying to stick to a monthly budget, this consistency can be a big help.
4 Reasons You Might Skip Autopay for Student Loans
While autopay has its benefits, it isn’t ideal for everyone. Here are some reasons it might not work for your financial situation.
Inconsistent Income
If you’re a freelancer, gig worker or anyone with irregular income, autopay can be risky. When your paycheck varies from month to month, there’s a chance that you may not have enough in your account on the due date leading to an overdraft fee or declined payment.
For people with fluctuating finances, manually managing payments may be a better option. This allows you to prioritize necessities like rent and groceries when your income is tight.
Risk of Overdraft Fees
Autopay gives your loan servicer the authority to withdraw funds on the same date each month. However, if you’re not careful about maintaining sufficient funds in your account, you could face overdraft fees from your bank. These fees can quickly add up and set you back financially.
Regularly tracking your account balance is key to avoiding this issue; but, if you find it hard to keep tabs, autopay might not be the best route for you.
Losing Track of Balance
When your payments are automated, it’s easy to forget to check your loan balance regularly. Over time, this disconnection from your loans could lead to missed errors or opportunities to pay off debt more strategically.
For example, you might not notice whether your loan servicer incorrectly applies a payment or fails to credit you with the interest rate discount you earned by enrolling in autopay. Also, you might miss out on chances to make extra payments when your finances allow.
If staying hands on with your student loans is important to you, manual payments may be the better option.
Payment Flexibility Needed
Life is unpredictable — and so are finances. You might need the ability to adjust your payments occasionally whether that’s skipping a payment during an emergency or making additional payments to reduce your debt faster. Autopay can make this flexibility more difficult.
For example, if you want to pay more than your monthly minimum to reduce interest, you’ll often need to make those additional payments manually. Similarly, if you’re enrolling in a temporary deferment or forbearance plan, you’ll need to pause or cancel autopay carefully to avoid unnecessary deductions.
When flexibility is a priority, it’s worth considering whether manual payments suit your needs better.
Ultimately, the decision to enroll in autopay comes down to your financial circumstances and personal preferences.
If your income is steady and you’re looking for effortless ways to save on interest, reduce stress and stick to a budget, autopay could be a valuable tool. On the other hand, if you have an irregular income or need more control over your payment schedule, manual payments may give you the flexibility you need.
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