Automatic Debit

Automatic debit summary:

• Automatic debit payments allow a lender or biller to take money from your bank account. You give your permission one time, when you set up automatic debits. Ongoing payments don’t need additional authorization from you.

• Automatic debit can be used to pay a range of bills, from mortgage and utility payments to student loans and car insurance. 

• Debt resolution programs may use automatic debit to collect monthly payments, which are deposited into your dedicated account. 

Automatic debit definition and meaning

Automatic debit is when you let someone else, usually a lender or biller, take money from your bank account on a regular schedule. You provide your bank account information, and payments are deducted automatically on their assigned due date. 

Auto debit, also called direct debit or auto-pay, streamlines bill payments since you don't have to remember to schedule them or write a check. It can also help you avoid late-payment fees. 

Lenders might offer an interest rate discount when you enroll in automatic debit payments. For example, if you set up auto-pay for student loans

Key concept: Automatic debits are regular automatic withdrawals from a bank account to pay bills.

More on automatic debit

When you've got bills to pay (and who doesn't?) automatic debit can be a time-saver. Automatic debit lets the people you owe money deduct bill payments from your bank account electronically. 

Your bills get paid, and you avoid late fees—sounds like a win-win, right? Automatic debit also offers flexibility, since you can use it to make a wide range of payments. 

Automatic debit: a comprehensive breakdown

In bank lingo, a debit is when money is taken out of your bank account. (And a credit is when money goes in.) You debit your account when you swipe your debit card, withdraw cash at the ATM, or pay bills. 

Ordinarily, when you use your bank's bill pay services, you have to log in and schedule the payment ahead of the due date. Automatic debit lets you set and forget important payments instead. 

Here's how it works:

• You decide which payments you want to set up automatic debits for. 

• You give the lender or biller your bank account details, which include your account number and your bank routing number. The routing number identifies your bank. You can find this number at the bottom left of one of your paper checks, or you can view it when you log into online or mobile banking.

• The lender or biller arranges with your bank (electronically) to debit your bill payment from your account on your scheduled due date each month. 

Automatic debit allows money to move directly from your bank account to the biller's. You don't need to remember to schedule bill payments or mail a paper check. 

Payments continue on the same schedule unless there's a change on your side or the biller's. For example, if you pay off your car loan, then automatic debits for your payments would end. Or you might ask your biller to change your due date if another day is a better fit for your budget

Auto payments can save time and avoid fees for late payments. You may also be able to get a break on interest if your lender or biller offers a rate discount when you set up autopay. 

Types of automatic debits

What bills can you pay with auto-debit? Here are some of the payments you might be able to make.

• Utility bills

• Cell phone bills

• Internet bills

• Car insurance

• Car loans

• Student loans

• Personal loans

• Payday loans

• Tax bills (if you have a payment plan with the IRS)

• Subscription services

• Gym memberships

• Credit card bills

• Mortgage payments

You could also use automatic debit to fund your dedicated account if you enroll in a debt resolution

You might not be able to use automatic debit to pay every bill.