The importance of on-time payments

Barbara

I'm usually a stickler for punctuality . Since I became an independent adult, my promptness has carried over into my finances.

When it comes to repaying student loans , borrowers should be conscious of their punctuality, too. You can be rewarded for on-time payments, but paying late can put you in a messy situation. To get more info on student loan repayment, I enlisted the help of my colleague Phil DeGroot, who works with Wells Fargo borrowers who are currently in repayment.

Here's what I learned:

Why does it matter if I pay on time?
First off, many lenders offer benefits  for on-time payments. You can usually get a discount (either on your interest rate or principal balance) when you make all of your payments on time for a certain period. One suggestion from Phil was to set up automatic payments from a checking or savings account. (This might even qualify you for another discount—it does at Wells Fargo!)

Also, paying on time will help you establish a good relationship with your lender. Phil says that relationship can come in handy if you have a problem paying later on. Your lender will be able to see your track record. And if your payment history is pretty clean, your lender may be more willing to give you a little leeway – perhaps in the form of a waived late fee.

Speaking of late fees …
Take it from the man who deals with student loan borrowers on a daily basis – you should avoid late fees like the plague. Why? Phil puts it this way: Sometimes late fees on loans can be almost half of what your regularly scheduled payment is. If you pay late two months and incur late fees, you could've been another month closer to paying off your loan instead of putting your money toward late fees. Most lenders offer a couple of days' grace period before they'll actually charge a late fee.

What other consequences are there?
Aside from the effect on your wallet and your credibility with your lender, paying late also can hurt your credit. Once you're late for a certain number of days, your lender will report you to the credit bureau. Each late payment pings your credit and can lower your credit score . Plus, it can make it difficult to get other loans or lines of credit.

So what's a good game plan?
Know your options. On federal student loans there are quite a few options to postpone your payments. But when you're talking about private loans, your options are pretty limited. If you know you can't make a payment, Phil says, it's best to call your lender and let them know what's going on. So keep your lender in the loop – they can't help if they don't know the situation.

Now that you have more information from someone in the industry, I'm curious what your experiences have been like. Give me a little insight into your student loan repayment. Also, let me know if you want more student loan tips from Phil.