Automatic Payment

Automatic payment summary:

• An automatic payment is a scheduled money transfer to a vendor or company that you authorize in advance.

• You can set up automatic payments through service providers, banks, and credit card accounts.

• Some home equity loan lenders (and other lenders) may provide an APR discount if you agree to let them set up automatic payments when you get your loan.

• Automatic payments are a great tool for helping you avoid late or missed payments, which could drag your credit score down.

Automatic payment definition and meaning

An automatic payment is a payment you preauthorize to pay a vendor or provider, usually each month. You can set up an automatic payment directly through a service provider you use or through your bank or credit card. Your payments will go through on the dates you've designated so you don't have to make manual payments when your bills are due.

Key concept: A preauthorized scheduled money transfer that’s regularly deducted from your bank account or credit card.

More on automatic payment

You can set up different types of automatic payments. through a service provider, including payments for:

• Cell phone 

• Cable or streaming services 

• Utilities 

You can also set up automatic payments for loans, including your:

• Mortgage 

• Auto loan 

• Personal loan 

• Student loan 

Credit card companies also allow automatic payments. With a credit card, you typically have three options for automatic payments:

• Minimum payment

• Statement balance in full

• A monthly fixed amount 

Some lenders offer a rate discount to borrowers who agree to automatic payments. You’d want to find out about this benefit during the application process, because getting a rate discount isn’t possible after your loan is final.

Automatic payment: a comprehensive breakdown

When you set up autopay, the payment goes through on the designated date without you having to take any action. People commonly set up automatic payments for recurring monthly bills. 

Automatic payments could save you time, eliminating the need to go into your various accounts each month to make payments manually. They're also a good way to make sure your bills are being paid by their due dates.

A late payment could mean a late payment fee. And late payments could result in credit score damage if that activity is reported to the credit bureaus. 

Setting up automatic payments could help you avoid late fees as well as protect your credit score. Some companies offer discounts for people who sign up for automatic payments, including:

• Cell phone, internet, and cable

• Car and home insurance 

• Student loans 

If you have multiple bills to juggle each month, setting up recurring automatic payments could make life easier. However, putting your payments on autopilot means you risk losing track of how much you spend. 

Real-life example of automatic payment

Your mortgage payment of $1,200 is due on the first of the month. You set up an automatic payment to debit that amount from your checking account each month. No need to make a manual payment, and you know your mortgage will always be paid on time.