For example, let’s say you owe $100,000 at a 4% interest rate and have 10 years to pay it off. Your monthly payment will be $1,012 and you will pay a total of $21,494 in interest over the term of the loan. By lowering the rate to 3.75%, your payments will drop a bit to $1,001, but you’ll save $1,421 in interest overall. Every part helps.
Keep in mind that automatic payment can backfire if you are not careful. The student loan payment will be withdrawn from your designated bank account, regardless of whether you have enough money there, warns Rebecca Safire, certified student loan counselor and debt expert with Student Loan Hero. So if your balance goes down, you could end up with an overdraft and paying a hefty fee.
“If you’re concerned that you don’t have enough money in your bank account each month to cover your living expenses, then an automatic payment might not be the best option,” says Safier, adding that if you’re struggling to keep up with your student loan bill, it may be worth looking into In options to lower or pause payments, such as applying for income-driven reimbursement, forbearance, or deferment.
If you were previously enrolled in automatic payment, but later decided that it is not right for you, be sure to unsubscribe as soon as possible and check when you will return to manual payments. Tayne noted that loan providers often need 5 to 10 business days to stop an automatic payment, so they may try to get payments from the old account if you don’t make the change early enough before the payment date.