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Football may be a game of inches, but borrowing is a game of fractions.
Keeping that in mind, experts say consumers can benefit by finding one of the many lenders who cut deals on home equity loans and lines of credit for people willing to make payments electronically. By agreeing to have money automatically debited from an account, these savvy customers qualify for interest rate breaks of as much as one-half of one percent -- to say nothing of the 32 cents a month they'll save in postage.
Everybody gains
"The incentive for the customer is they get a rate discount. And, for the bank, it's that the funds are available in the account that day," says Greg Benson, a spokesman for the Washington-based trade group, America's Community Bankers. "Historically, it's worked pretty well."
Automatic drafts have long allowed customers to forego the hassle of mailing in payments. Benson says Transmatic, an automatic mortgage payment system, was available as early as 1974.
With the home equity barrage of the last few years, however, lenders increasingly have turned to various marketing ploys, and tying interest rate discounts to automatic drafts seemed like a natural.
"We have completely free checking accounts," explains Howard West, an assistant manager with Century National Bank and Trust Co. in Beaver Falls, Pa. The customer "can open a free checking account (and) get the quarter point discount. There's no minimum on the account and there's unlimited check writing."
Savings in the hundreds
Century National allows customers to have drafts taken only from checking accounts because a savings withdrawal program didn't work well. With home equity loans, a customer in the bank's Direct Charge program will enjoy a 0.5 percent rate discount, and will be allowed to select the date on which the drafts will occur, bank officials say. On lines of credit, the discount is 0.25 percent and the draft is drawn on the 25th of each month.
At Community Bank, based in Staunton, Va., the program is available only for fixed-payment home equity loans. In the 18-month history of the program, it has attracted about 75 percent of the bank's loan customers to automatic drafting, according to assistant vice president Virginia McCormack.
"On our equity loans, we give a reduction of one-quarter of a percentage point of interest," McCormack says. "It cuts out a lot of traffic in manual posting" of payments.
Things to remember
People interested in setting up debit payments usually need to keep the loan and the account at the same institution. Some banks may have the capacity to automatically debit an account at a different institution, but they probably won't grant a rate discount in those cases, experts say.
Customers also should be sure they're going to have money in their accounts on each month's transfer date. If they don't, the bank may put a hold on the account, meaning any incoming deposits will be used to cover the debt before new funds are available for withdrawal. Or the bank may try to draw the payment once or twice over a period of a couple of days, and then yank the rate discount.
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