Tips for Evaluating Loan Discounts
Here are a few tips for evaluating Loan Discounts:
- Be realistic about your ability to make all of the payments on time.
- Focus on discounts that are immediate in nature (front-end discounts) and loan discounts which you can't lose. These include discounts for direct debit of the monthly payments from your bank account, fee rebates you receive soon after signing up, and interest rate and principal reductions that do not require on-time payment.
- When a repayment incentive requires on-time payments, prefer those that involve a shorter time period before you can qualify for the discount. A discount that is suspended for a short time period after you are late with a payment is better than one that terminates after a single late payment.
- Be sure to ask the lender whether there is a minimum balance to obtain the discounts. Often the discounts require a loan balance that is higher than the minimum balance required to consolidate.
- Sign up for the direct debit of the monthly payments from your bank account. It is more reliable and secure than sending the payments through the mail. You will be less likely to miss a payment.
- Be sure to notify the servicer of your loan of your new address any time you move. USPS mail forwarding expires after six months, just as the grace period runs out. Having your mail forwarded can also add delays that cause your payments to be late. This may explain why many borrowers who lose prompt payment discounts do so on the very first payment.
- Read the fine print on any discounts. In particular, ask whether you will have to repay the discount if you consolidate your loans.
- Ask what is considered an "on-time" payment; usually this is within 10-15 days of the due date, but for some lenders it can be within 30 days of the due date.
- Some colleges have negotiated additional discounts with particular lenders, so be sure to ask if there are any additional discounts for students from your school.
- Ask whether a principal reduction is based on the original principal balance or the current principal balance at the time the rebate is applied. The latter is worth less, since you will have a lower principal balance after making the required number of on-time monthly payments. When the lender fails to specify that the principal reduction is based on the original principal balance, it usually means that the reduction is based on the principal balance at the time you qualify for the reduction.
- Some lenders require you to request the discounts in writing within a specific time period. Be sure to read all the fine print.
- Ask whether the 0% fees are an actual waiver (upon disbursement) or a delayed credit (at repayment or later). The former is more valuable than the latter. Some lenders are failing to disclose that "0% origination fees" are actually implemented as a delayed credit.
The Loan Discount Analyzer can help you evaluate the various loan discounts and decide which discounts will save you the most money.
Loan Discount Comparison Charts
The following pages offer basic comparison charts that highlight the loan discounts each lender offers for each type of loan. The discounts each lender offers usually depend on the type of the loan, since lender profits vary by loan type. Only lenders that offer loan discounts are included in these charts.