Autopay Rate Discounts: Worth Taking, With Conditions

What an autopay discount is

An autopay discount is a lower interest rate offered in return for repaying by preauthorized electronic fund transfer: you authorize the lender to pull each payment from your checking or savings account on the due date. The lender gets steadier payments; you get a smaller finance charge.

Not every lender offers one, and the size varies. Look for it in the offer as two rates, such as a rate "with autopay" and one "without," or as a line in the agreement that names the discount and its conditions. If an offer quotes only the lower rate, ask what the rate is without autopay.

What a discount is worth: $10,000 over 36 months

The table compares a 14% loan with the same loan at a quarter point and a half point less. The discount sizes are illustrations, not typical figures from any lender, and the amounts are worked examples computed with the amortization formula.

The saving is real but modest: a few dollars a month on a loan this size. It grows with the loan amount and the term. Weigh it against the cost of a payment that bounces. Ohio, for example, lets a licensed lender charge up to $20 plus any amount another bank passes on for a returned payment. One such charge cancels more than a year of the quarter-point saving, before your own bank's fee; see late fees and returned payments.

What the law says: a reward, not a requirement

Regulation E, the rule under the Electronic Fund Transfer Act, sets three limits that matter for autopay on a personal loan.

• No compulsory autopay. Section 1005.10(e)(1) says no one may condition an extension of credit to a consumer on repayment by preauthorized electronic fund transfers. The exceptions are credit under an overdraft credit plan and credit extended to maintain a specified minimum balance in your account.
• Incentives are allowed. The official commentary lets a creditor offer a reduced APR or other cost incentive for automatic repayment, as long as the autopay program is not the only loan program it offers for that type of credit.
• Written authorization. Section 1005.10(b) requires preauthorized transfers from your account to be authorized in a writing you sign or similarly authenticate, and the person who obtains the authorization must give you a copy.

So a lender may say "13.5% with autopay, 14% without," but it may not refuse the loan because you want to pay by check, card or a manual online payment. If a lender tells you autopay is mandatory, ask for the terms without it in writing.

What happens if autopay stops

The agreement decides. Read the discount clause for three answers: what ends the discount (cancelling autopay, a returned payment, closing the linked account), whether the higher rate applies from the next payment or from a later date, and whether you can earn the discount back by re-enrolling.

Here is one way it can play out. Take the 13.5% loan above and suppose the discount ends after 12 payments. The balance is about $7,102.89; at 14% over the remaining 24 months, the payment rises to $341.03 and total interest comes to $2,256.92, still $47.16 less than with no discount at all. Some agreements keep the payment the same and change the last payment instead. These figures are worked examples, not offers.

Because a rate that can rise after signing is a variable-rate feature, check whether your disclosure describes when the discount can end and its effect. Fixed and variable rates lists what those statements must cover.

How to stop or change automatic payments

1. 1 Tell the lender first that you are cancelling the authorization, using the method the agreement names, and set up another way to pay so the next installment is not late.
2. 2 Tell your bank at least three business days before the scheduled transfer. Section 1005.10(c) lets you stop a preauthorized transfer orally or in writing.
3. 3 Send written confirmation within 14 days if the bank asks for it. An oral stop-payment order can lapse after 14 days without it.
4. 4 Check your statement after the next due date to make sure the draft did not go through and that your payment reached the lender.

Stopping a transfer does not stop the debt: the payment is still due. The step-by-step guide to your first payment and autopay covers setting it up and the dates to watch. Late charges and returned-payment fees are set by the agreement within your state's limits; see state rules.

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