Automatic Bill Payment
An automatic bill payment is a money transfer scheduled on a predetermined date to pay a recurring bill. Automatic bill payments are routine payments made from a banking, brokerage or mutual fund account to vendors.
Automatic payments are usually set up with the company receiving the payment, though it’s also possible to schedule automatic payments through a checking account’s online bill pay service. Automatic bill payments occur over an electronic payment system, such as the Automated Clearing House (ACH). However, some billers may not allow for automated payments.
This type of payment can be used to pay different types of bills, for example, utility bills, credit card bills, monthly fees for childcare, gym fees, car payments, or even a mortgage. Such automatic payments can be a convenient way for people to make sure they pay their bills on time. Some lenders offer an interest rate reduction on loans for paying by automatic debit.
Automatic bill payments can be scheduled for all types of payment transactions. This can include installment loans, auto loans, mortgage loans, credit card bills, electric bills, cable bills, and more. These payments can be automated quite easily from a checking account. By contrast, automatic payments can also be difficult to cancel. Additionally, consumers might forget about certain automatic payments and continue to pay for services that they no longer want.
To set up automatic debit payments directly with a company, such as a student loan or mortgage servicer or even a gym, a customer gives the company their checking account or debit card information and gives them permission in advance to electronically withdraw money from the account on a recurring basis, usually at regular intervals like every month.
Automatic debit payments can be set up to pay the same amount each time, just as a customer can allow payments that vary in amount within a specified range - for example, for the utility bill that changes each month. The company should let the customer know at least 10 days before a scheduled payment if the payment will be different than the authorized amount or range, or the amount of the most recent payment. The amount due for the payment is collected automatically by the biller according to the payment schedule.
Consumer Financial Protection Bureau. An official website of the United States government publishers. Retrieved from: https://www.consumerfinance.gov/ask-cfpb/how-do-automatic-debit-payments-from-my-bank-account-work-en-2021/
Investopedia. Julia Kagan Former, Senior Editor, Retrieved from: https://www.investopedia.com/terms/a/automatic-bill-payment.asp
Forbes. Rebecca Lake, financial journalist. Daphne Foreman, Personal Finance Analyst. Retrieved from: https://www.forbes.com/advisor/banking/how-automatic-bill-payment-works/