# Automatic Bill Payment: What It Is, How It Works, Pros, and Cons

![A person paying bills](https://www.investopedia.com/thmb/p9eesWhNhQ8E5nJJ6sxy0ieRYZQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-2009637055-13f7a845a36d4873af019fe155adb9b6.jpg)

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## What Is an Automatic Bill Payment?

An automatic bill payment (auto pay) is a money transfer scheduled on a predetermined date to pay a [recurring bill](https://www.investopedia.com/terms/r/recurring-billing.asp). Auto pay is 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.  

### Key Takeaways

*   An automatic bill payment occurs when money is automatically transferred on a scheduled date to pay a recurring bill, such as a mortgage, credit card, or utility bill.
*   You can set up auto pay through your online checking account, brokerage, or mutual fund to pay your monthly bills.
*   Auto pay comes with many benefits: it's easy to use, and it can help you avoid late payments. It also might help you maintain or improve your credit score.
*   There are also downsides to auto pay: it can be difficult to cancel, and you'll need to keep adequate funds in your checking account. If you don't, you may incur a returned payment or late fee.

## How an Automatic Bill Payment Works

Auto pay can be scheduled for many types of transactions. This can include [installment loans](https://www.investopedia.com/articles/personal-finance/072316/how-installment-loans-work.asp), auto loans, [credit cards](https://www.investopedia.com/terms/c/creditcard.asp), [mortgages](https://www.investopedia.com/terms/m/mortgage.asp), electric bills, cable bills, and more.

To set up auto pay, you'll need to give permission to the [vendor](https://www.investopedia.com/terms/v/vendor.asp) (the utility company, for example) to charge your checking account. You can do this on the vendor's website or through your bank using the bill pay feature.

### Pros and Cons of Automatic Bill Payment

Pros

*   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.
    

Cons

*   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.
    

## What's an Example of an Automatic Bill Payment?

Suppose you have a $600 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 $600 automatically transferred from your checking account to the auto loan company on the fifth day of each month. This way, you'll know your payment will never be late, and you’ll avoid the trouble of doing the same task each month. You'll also maintain or improve a [good credit score](https://www.investopedia.com/articles/personal-finance/120414/what-good-credit-score.asp).

## Why Is Auto Pay a Good Idea?

Automatic bill payments save you the hassle of having to [remember to make a payment](https://www.investopedia.com/articles/pf/08/stop-paying-bills-late.asp) month after month. They can also help you avoid late payments. And in some cases, they can help you build a good credit score.

## What Are Some Drawbacks of Auto Pay?

Automatic bill payments can be difficult to cancel. It's possible you'll forget about certain automatic payments and continue to pay for services that you no longer want.

And if you forget about your scheduled automatic payments and don't 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](https://www.investopedia.com/terms/r/returned-payment-fee.asp) from the company you were trying to pay, as well as a [late fee](https://www.investopedia.com/terms/l/late-fee.asp) for missing the due date. Your bank will also charge you a fee for the bounced transaction.

### Note

You can auto pay almost any transaction, from credit cards to mortgages.

## The Bottom Line

An automatic bill payment (auto pay) is a routine payment made from a banking, brokerage, or mutual fund account to vendors. Though auto pay comes with some benefits—you're guaranteed to have your bills paid on time, for example—there are also some downsides. If there's not enough money in your checking account to pay the bill, it will bounce, and you may be hit with a returned payment fee from the vendor, a late fee from the vendor, and a bounced transaction fee from your bank. Consider carefully whether auto-pay is the right choice for you.