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Automatic payment

Automatic payment is a term it pays to understand. Bankrate explains it.

What is automatic payment?

An automatic payment is an arrangement with a creditor that allows the creditor to periodically withdraw money from a credit card, checking or savings account to pay a bill. It is normally used for regular monthly payments such as a mortgage, rent or utility bills.

Deeper definition

In general, there are five ways to make a payment to a creditor: by phone, by mail, in person, online or automatically. When automatic payment is set up, debtors can simply “set it and forget it.” As long as they maintain enough money in their bank accounts to cover the monthly payment, there is little to worry about.

The advantages of making automatic payments include:

  • No late payments.
  • Less time wasted writing bills.
  • Money saved on postage.
  • Automatic payments are normally conducted through a secured site.

Read here for more about online banking.

Automatic payment example

A consumer has an auto loan and is worried that he will forget to make a payment. He asks his lender if it offers an automatic payment option. The lender requires him to sign an agreement that permits the lender to take the payments automatically from his bank account.

Many lenders allow their customers to set up automatic payments directly through their websites. In this case, the customer would log on, designate the account from which he wants the funds debited each month, and agree to a specific date.

Signing up for automatic payments through a company website has at least two benefits: First, the customer has 24/7 access to account information, including how much he owes. Second, he can make changes to the agreement, if needed. For example, if the borrower decides that he would like to make a larger payment each month in order to pay the loan off early, he can log on and request that a larger amount be debited from his account.

Use our calculator to figure out your monthly payments on a loan.


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