Making a loan payoff goal is a fantastic feeling. Your bank, however, may not feel the same way as you do …
As I posted about recently, we paid off our van loan, something we're very happy about. We celebrated along the way, of course, but these mini-celebrations are nothing compared with the complete loan payoff.
The financial institution that held our loan recently sent us the title to the van. They also sent a separate letter notifying us of such.
Here's the text of the letter:
RE: Loan: *******123-4567
Collateral Description: [Our Van]
Payoff Date: 03/27/2015Dear John Wedding,
The above referenced load has been paid in full. If this loan was secured by a vehicle, the lien will be released and the paper title mailed to you within 30 days unless you have a delinquent obligation to the [financial institution]. If you have an outstanding delinquent obligation, the lien may not be released and the title may be held in accordance with the terms of your loan documents.
Thank you for allowing [financial institution] the opportunity to assist you with your financial needs. We hope that you will consider us again in the future. Should you have any questions concerning this or any other matter, please feel free to contact us at [number] or submit a secured e-mail request via our website at [url].
Sincerely,
[Representative]
Loan Department
This letter came with a flyer for the current car loan promotion.
Did you notice anything about this letter?
Here are a few things I noticed:
- It was clearly a form letter. There were unnecessary sentences in the letter. “If the loan was secured by a vehicle” was unnecessary, because it was, of course, a car loan. I wouldn't have gotten the loan without the collateral. “If you have an outstanding delinquent obligation” was also unnecessary, as I had none. But the boilerplate didn't change.
- It doubled as a marketing opportunity. Now that this loan was paid off, the selling for the next one began immediately with the flyer. (I guess I can't fault them for that.)
- It was pretty sterile. But I guess one doesn't usually expect financial correspondence to be witty and breezy.
But the biggie was that it was completely devoid of any congratulations.
The letter was perfunctory. It informed me of the loan payoff, but also explained in sufficient detail the recourse that they had which might prevent me from getting clear title. “You paid this off, but not so fast. We're going to make sure you don't owe us anything else.” Nothing puts a damper on a celebration like the threat of negative action.
Frankly, I kind of expected as much. Why?
- Me paying off my loan is a sad day for them. They lost an income stream: the interest on my loan balance. Not only that, they lost it almost two years faster than they bargained for because we paid the loan off early.
- They don't want me to be happy about paying off the loan. If I enjoy paying off the loan it too much, I may not want to get another one. Then the sadness continues for them: no income streams from me.
- The congratulations came when I got the loan, not when I paid it off. Unfortunately, I don't have the correspondence when I received the loan, but I do remember things being a lot cheerier back then.
One person's liability is another's asset
With our personal balance sheets, we have things we own (assets) and things we owe (liabilities). The money in our checking accounts are assets. The loans are liabilities.
For a bank or credit union, it's the other way around.
Deposits by the customers or members are liabilities for the bank or credit union because they are owed to the customers or members.
Loans, however, are assets for the bank or credit union. The terms of the loan result in regular payments to them until the loan is paid off.
Another indication that loans are assets to the bank or credit union is that, under certain conditions, they can sell the loan to another party. The mortgage on one of our properties has been sold twice to different lenders, but we just keep making the payments.
It's not personal. A loan payoff is business.
The people who underwrote the loan are nice enough. But business is business. What's good for people isn't necessarily good for business, and it's the business that serviced the loan and sent me the letter, not the individuals.
And when it gets down to it, me paying off the loan wasn't directly good for business. So, the business wasn't celebrating along with me. And they shouldn't.
Seems that creditors want us in debt, as long as we can (even barely) make payments! I’d sure find more rewarding being in ‘the business’ of helping people pay off debt instead of take on more debt.
True. That’s how banks make their money, so I guess I can’t fault them for trying to stay in business! 🙂
Congratulations on your (early!) loan pay-off!!
This post is spot-on. I love that they included a flyer on how to get a new car loan.
Yes. No marketing opportunity lost!
You’re totally right about this. I noticed the non-congratulations part of it when I paid off my car. I was totally excited about it, but the bank was quiet about it.
I agree that they don’t want you to feel as if you accomplished something, so that it doesn’t positively enforce something in the wrong direction(from their point of view)- that way you don’t look forward to that feeling when/if you take out a new loan in the future. No warm fuzzy feeling, so why pay off your loan, right?
I’m sure lots of money was spent on marketing and research, by the banking industry, to come up with that “simple” letter.
OK, at least I’m not the only one!!
Congratulations on paying it off! What an accomplishment! I recently paid off my car and experienced something similar. And then they start mailing you notices to trade in your car and upgrade to a newer one…if they haven’t already…
Oohhh, more marketing to look forward to! 🙂
We tend to run cars into the ground. Though I do hope the next one we can sell while it’s still operable!
Since they didn’t say it, I will–congratulations! It sure feels good not to have the shackle of debt hanging onto you, doesn’t it? 🙂
You make a good point–banks will subtly pull stuff like this to make you not feel so good about paying off your loan.
Ha thanks! Yes, it does feel good.
To be fair, though, I can’t really blame businesses for doing what’s good for business. There are enough roadblocks in their way.
paying of mortgage earlier for you is nice, but on other hand, not so cheap, depend in which year of credit you are.
Banks charge fees for early repayment, not so nice ;(
On the other hand, imagine that you are investor, and your partner after second year tells you: ”I am finished here is your money, I don’t need it anymore”,
you would probably ask him for compensation…
I am a lender at a community bank and have been for over 10 years. In the course of looking for a good letter to send a customer upon paying off a loan I ran across your post. Thank you for the honest feedback from the customers prospective! A lot of your assessment is correct about how banks/credit unions operate, but I would like to think I am in the business of helping people achieve their goals. If their goal is to purchase a car and they need a loan, I hope to make them a loan. If their goal is to get out of debt, I hope I can assist with that as well. Many times banks/credit unions are too focused on the bottom line and not the customer. Anyway, thanks again for your honest feedback regarding this topic.