Debit Card Loan Payments Offer Convenience to Lenders and Consumers

Author: Adam Langdon, Managing Director, Enterprise Banking

A recent report conducted by the New York Federal Reserve indicated that 7.7% of car loan debt was overdue by 30 days or more in 2023. Likewise, 8.9% of credit card balances and 3.2% of all debt remained overdue during the first quarter of 2024.

The reasons behind the increase in overdue payments range from temporary financial hardship to plain forgetfulness and lack of time. In fact, many life situations can result in delayed payments. Maybe it’s a move to a new state and unanticipated costs that drain finances. For others, it may be an employment change or job loss that results in late loan payments. 

Sometimes, a borrower simply forgets to make a payment, or it’s a matter of time and circumstance that puts an account into overdue status. A recent report indicates that half of Americans pay bills by check – a time-consuming process that requires writing the check and making sure it gets mailed or dropped off. 

All of this is leading lenders to look for ways to simplify loan payments, making it easier for customers to pay and to do so on time. One option is creating the opportunity to take debit card loan payments. 

Banks and Lenders Work Together to Simplify Loan Payments

Regardless of the reason for late payments, the practice can have long-term impacts on borrowers, resulting in falling credit scores and lost future opportunities. Lenders face their own challenges when borrowers pay late, including increased servicing costs. Given the wide-ranging effects, it’s beneficial for all parties when borrowers pay on time.

To help absent-minded borrowers, lenders are looking for new, convenient and efficient payment methods. Banks are also playing a part, offering innovations that provide lenders with new payment tools. 

For instance, FNBO partnered with VISA to offer promotional rates to lenders who want to offer customers the ability to make a payment using a debit card. Lenders who enroll in the Visa Debt Repayment program can process consumer debit card transactions at a competitive low rate, comparable to ACH transactions. Loan types eligible for this exclusive program include credit cards, mortgages, home equity loans, auto loans, student debt and consumer loans.

While the low fee structure makes it appealing for lenders to offer the ability for customers to make debit card loan payments, there are additional benefits as well. For instance, lenders are freed from potential ancillary charges, such as return check fees

Offering debit card loan payments makes it easier for consumers to pay when they have forgotten or fallen behind. The added simplicity increases the odds that borrowers will more quickly rectify overdue payments than if they have to write and mail a check. 

Meeting People Where They Are

Offering debit card transactions to borrowers makes sense on another level: it’s simply the way many consumers prefer to pay. More consumers hold a debit card than a credit card, according to recent research, and 70% of individuals responding to a recent survey say they prefer to make card payments when taking care of bills. Seventy-six percent even go so far as to say they prefer working with businesses that take card payments.

The Visa Debt Repayment program also makes it easy for consumers to set up recurring payments using their card. It’s the set it and forget it simplicity that today’s borrowers prefer and that benefits lenders because payments come in regularly and on time.

The cost-effectiveness of debit card payments, thanks to low interchange fees, mirrors that of traditional payment methods, while the consumer-friendly nature of debit card transactions encourages timely and regular payments. This dual advantage not only simplifies the repayment process for borrowers but also enhances financial stability for lenders. By prioritizing these benefits, lenders can build stronger, more efficient relationships with their clients.

About the Author: As the leader of Merchant Services, Adam emphasizes revenue development and growth for area companies, helping to drive business profitability in support of thriving and prosperous communities. He has garnered experience across multiple industries, working with a number of top financial firms to lead merchant service strategies.