how an automatic bill payment works
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 setting up automatic bill payment involves making arrangements with the bank holding the checking account to make the exact payment each month the set of instructions is typically created online by the account holder more frequently this power is given to the vendor the utility company for example to charge the checking account for whatever amount is owed that particular month in both cases the individual paying the bill must initiate the automatic bill payment and provide the necessary information required to make automated recurring payments payments are easy to automate from a checking account organizing automatic bill payments helps you avoid late payments paying automatically and always on time helps you improve or maintain a good credit score once payments are set up you don t have to keep doing the task each month if you don t keep a cushion in your checking account an automatic payment could bounce you may incur a returned payment fee or late fee you could miss catching mistakes or fraud because the payment is automatic automatic payments can be difficult to cancel example of an automatic bill paymentautomatic payments save consumers the hassle of having to remember to make a payment month after month they can also help consumers avoid late payments for example suppose you have a 300 car payment due on the 10th of every month for the next 60 months instead of logging into your online account with the auto loan company to schedule the same payment each month you could set up automatic payments one time and agree to have 300 automatically transferred from your checking account to the auto loan company on the fifth day of each month this way you know your payment will never be late and you ll avoid the trouble of doing the same task each month you ll also improve or maintain a good credit score disadvantages of automatic bill paymentsautomatic payments have a couple of potential downsides if you forget about your scheduled automatic payments and do not maintain a cushion in your checking account an automatic payment could bounce not only will your bill remain unpaid but you might also incur a returned payment fee from the company you were trying to pay as well as a late fee for missing the due date and automatic payments aren t infallible you still need to check regularly to make sure your scheduled payments have gone through as expected another problem can occur when you authorize automatic payments that vary in amount for example suppose you set up automatic payments of your credit card bill from your checking account if you don t look at your credit card bill when it arrives you might have an ugly surprise when it s automatically paid in a much higher amount than you expected because of a mistake or fraud or because you simply didn t realize how much you had spent 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 