Can Auto-Debiting Lower Your Student Loan Interest Rates?
Updated on December 6, 2019
For some people, student loans turn out to be a necessary burden because they end up getting better-paying jobs in industries of their choice. To others, student loans may seem like another trouble to deal with after graduation. Irrespective of how you view it, student loan debt is leaving a bigger percentage of college graduates burdened right from the beginning, drowning in debt and stress.
Before you give up, however, know that there are several strategies that you can use to pay these loans off faster and cheaper. One easy way to pay down student loans is to sign up for an auto-debit.
How it Works
When you enroll for an auto-debit, you are allowed to pay a certain amount of the current money due each month until your loan is paid in full. Each month, the lender withdraws the amount you agreed to pay from the authorized bank account.
You can choose to pay more each month or on certain months to clear the loan fast or lower your total loan cost. The good news is that you won’t incur any penalty for paying extra or paying early.
How It Can Lower Your Student Loan Interest Rates
Many lenders give a discount on the student loan interest rates if you sign up for an automatic payment plan. For instance, Federal student loan service provides 0.25 interest rate discounts if you enroll for an auto-debit. So, if you have a $10,000 loan, dropping your interest rate from 4.5% to 4.35% will help you save around $144 based on a 10-year repayment plan.
Although it might not be a huge saving, it can go a long way in helping you pay off your student loan debt faster, especially if you decide to increase your auto-debit amount or lower the repayment period.
As a bonus, auto-debiting ensures that you never miss a payment. A late payment is not a good thing. Some lenders may charge a late repayment fee or cancel certain repayment incentives. Besides, late payments are often reported to credit bureaus and may lower your credit score. So, setting up an auto-debit will help you avoid the mistake of late or missing a payment.
Provided that you can afford it, auto-debiting is a smart way to lower your student loan interest rates. It is also a superb way to never miss loan repayments or go into student loan default. Give us a call today if you’re still unsure.