What is Direct Debit?

What is Direct Debit?

There are many different forms of payment, which can coincide with plenty of financial jargon. Therefore, throughout this guide, we will explain what Direct Debit is and its benefits.

Definition of Direct Debit

So, what is Direct Debit? A Direct Debit is an instruction you have made to your bank to make an automatic payment. Not only that, but it is also the safest and easiest way to make recurring payments. It is an agreement between you and the company you are paying to take the relevant amount out of your account each month.

Definition of Direct Debit

So, what is Direct Debit? A Direct Debit is an instruction you have made to your bank to make an automatic payment. Not only that, but it is also the safest and easiest way to make recurring payments. It is an agreement between you and the company you are paying to take the relevant amount out of your account each month.

What can I use Direct Debits for?

You can set up a Direct Debit to make a payment for most things, but the most common are:

  • Regular bills – You can set it up to pay your bills on time each month, for example, utility bills and council tax.
  • Subscriptions and memberships – Such as a gym membership or subscription to Netflix, you can set them up to cover the payment each month. That way, they are taken automatically out of your current account without ever having to worry.

Although they are very similar, a standing order is not to be mistaken as a Direct Debit. Standing orders are often used to pay a person rather than a company. For example, to pay rent or a partner for joint bills. They are for a fixed amount, rather than a varied amount like a Direct Debit.

What should I know about Direct Debits?

They are a simple and straightforward form of payment, as well as being the safest. This is mostly down to these Direct Debit schemes that must be followed:

  • Advance notice – A Direct Debit isn’t always a fixed amount. However, you must always be told the amount and the date of the bill before it is taken out of your account.
  • Direct Debit guarantee – If money has been taken out of your account by mistake or if you have been charged too much, you are entitled to a refund.

How to set up a Direct Debit

To set up a Direct Debit on your current account is simple. All you need to do is provide authorisation to the company so that they can take the money from your account by completing an instruction form. This form can either be filled out online or on paper depending on how you are joining the company’s services.

As you soon as you are set up, that’s it. You don’t have to worry about your bills, even when you’re on holiday. All you have to do is make sure there is enough money in your account to pay them.

What are the benefits of paying online?

There are many benefits to automatic payments, particularly by Direct Debit. Here are just a few of them:

  • Convenience – They are simple to set up and then you don’t have to worry about them.
  • Never miss a bill again – Since they are set up to pay your bills, as long as there’s money in your account, you won’t miss a bill again. This will then help to improve your credit score!
  • Safe and secure – It is the safest form of payment with cover in case mistakes are made.
  • Cost – Sometimes companies can offer incentives for you to set up a Direct Debit.
  • Cleaner – Online payments, as well as card payments, are much cleaner methods than cash, which can hold bacteria.

Can Direct Debits improve your credit rating?

Setting up Direct Debits are a great way to help you improve your credit score. One of the big factors that can benefit your credit score is paying your bills on time. This is exactly what a Direct Debit will help you do. Whether it’s your household bills, your credit card bill, or any other bill, ensuring they are paid on time is important. If you arrange these bills to be paid by Direct Debit then you are on the right track to boosting your score.