Future Proof: Setting Up Automated Payments for Your Loans

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In a perfect world, you’d have it all together all of the time. You’d pay your bills the second they hit your mailbox–weeks ahead of the due date–and late fees wouldn’t exist anymore because no one ever missed a payment deadline. Well, while abolishing late fees may be a bit of a pipe dream, automating your loan payments is an easy way to make the other parts of that perfect world a reality.

Why Late Payments Happen Despite Our Best Intentions

Adult life can get really complicated really fast. In any given month, you might be paying a minimum of seven different loans and bills, including a mortgage, student loan payments, and credit card payments.

That’s seven different bills from seven different companies with seven different websites and seven different due dates. Every single month. That can be a handful to keep track of, especially if you don’t have a budget.

Plus there’s that human tendency to procrastinate. Most people don’t get excited at the thought of sitting down to pay bills. It’s a mundane task that doesn’t feel particularly urgent. It’s all too easy for procrastination to set in. After all, the bills aren’t due for another two weeks so you have plenty of time, right? But taking the I’ll-do-it-later approach to managing your loan payments makes it far more likely that you’ll miss the payment altogether.

Missed Payments Can Hurt Your Finances in the Short and Long Term

Missing payment deadlines can have very real and long-lasting consequences on your finances. First, there are those hefty late fees that get tacked on. These fees can be as much as $25 or more per late payment. It may not seem like a lot at first glance, but let’s put it into perspective: that $25 is 1/15th of a six-night cruise to the Bahamas.

That’s right. Late payments could cost you that vacation to the Bahamas.

The costs of late payments go way beyond just the late fee. In some cases, it could cause the loan company or credit card to raise your interest rates.  The higher your interest rate, the more money the loan will cost you over time.

If you are 30 days late or more, your missed payment can also ding your credit score. In some cases, a single 30-day late payment could decrease your credit score by 90-110 points. And it can stay on your credit report for up to seven years according to Experian. This could affect your ability to get the best rates when buying a house, getting car insurance, or in some states, even landing that dream job you were angling for.

Automating your loan payments is an easy way to avoid the consequences that come with missed payments.

The Benefits of Automating Your Loan Payments

There are many benefits that come with choosing to automate your loan payments. First and foremost, you avoid late fees. Assuming you have enough money in your account to cover all of your automatic bill payments, your bills will be paid on time, every time, without you having to lift a finger.

Aside from saving on those late fees (Bahamas here we come), some lenders offer interest rate discounts when you opt to set up auto draft loan payments. These savings can quickly add up, especially on higher balance loans like mortgages and student loans.

If you opt for automatic loan payments, you can opt to turn off your paper statements (assuming you hadn’t already). Mail theft is still a thing, so having fewer items of mail going to and from your house that have sensitive financial information in it reduces the opportunity of identity theft.

The final benefit isn’t a financial but it may be worth more than all of the others: peace of mind. Having a sound plan in place helps to take the stress out of managing your finances. Instead of worrying about whether you remembered to pay your loan payment, you can focus on planning that trip to the Bahamas instead.

The Potential Pitfalls of Automating Your Loan Payments

Even though there are quite a few very good reasons to automate your loan payments, there are a few pitfalls that you should watch out for.

The first is overdrafting. You’ll want to make sure that you have enough money in your checking account to cover all of the payments that are automatically drafted. The last thing you want is to be hit with multiple fees: one for a late payment, one for a failed payment attempt, and one from your bank for overdrafting.

Second, you’ll still want to make sure that you’ve timed your payments so that they will arrive before the due date. Even in the digital era, it’s possible that your bank (see for instance, Bank of America) might have to cut a hard check to send to the billing company. Many banks offer guarantees that scheduled payments will arrive on time, so be sure to check your bill pay agreement so that you understand how far in advance payments should be scheduled.

Third, if you are making automatic payments through a third party, you might end up making payments that you didn’t need to make. For example, you might continue to pay that car payment even though your car was actually paid off two months ago. Of course, you probably will be able to get the money back, but it’s far better to avoid that issue altogether.

Making sure to monitor your finances periodically so you can make any necessary adjustments should help avoid these pitfalls.

How to Set Up Automated Payments for Your Loans

There are several options for setting up automatic loan payments, each with their own pros and cons. You can go through your bank, you can use your lender’s automatic payment option, or you can opt to use a third party.

First, you can go through your bank. Virtually every bank offers online bill-pay now and usually also allows you to make automatic payments.  That’s perfect for paying bills that do not change from month to month like most mortgages, car notes, and student loans. But for bills that can change from month to month, you may want to schedule those manually.

A second option is to schedule automatic payments directly with the company that you need to pay. You can choose to pay the minimum payment due or to always pay the entire balance in full. The plus side with this option is that your entire bill will always be paid in full while it’s on autopay, which isn’t always possible with a bank. Another positive is that the lender might offer you an interest rate discount by using their autopay. The major downside this method is that your bill paying is spread out on multiple websites, which means you will have to log in to each individual website to make sure things are running smoothly.

The third option is to use a third-party app. Third party apps tend to carry a larger convenience fee than banks or lenders, but you’ll want to compare their rates to be sure. The benefits are similar to a bank in that you can handle all of your automatic bill paying from a single site. But you most likely would miss out on any potential interest rate discount you would have received had you chosen to autopay through your lender.

Periodic Reviews: Out of Mind Doesn’t Mean Out of Sight

Now that you’ve automated your loan payments, and you’ve future proofed yourself from accidentally forgetting to take care of your bills, it doesn’t mean you get to head to the Bahamas and never check in with your finances.  You’ll want to be sure to check all of your accounts to make sure that everything is running smoothly.

For the first month or two, you’ll want to check that each payment went through before the due date so that you have time to correct any issues before you get hit with a late fee. After that, do what feels most comfortable to you, though it’s a good idea to checking in at least quarterly. Meanwhile, you can use apps like Turbo to monitor your credit and make sure everything stays on track.

The views and opinions expressed in this content are those of the author and do not necessarily reflect the opinion or view of Intuit Inc, Mint or any affiliated organization. This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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