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What is a direct debit and its benefits?

August 17, 2022

If you end up making payments late or not at all, that can negatively affect your credit score (in most countries). 

This can be avoided by setting up a direct debit. Of course, if you’re quite good with paying bills on time and like to have control over your monthly outlay, you can even refuse a direct debit. Keep reading to find out all the nuances of direct debit and how you can save money using it. 

What is a direct debit?

Direct debit is when bill payments, subscriptions, or other monthly payments come out of your debit account automatically, without you ever lifting a finger. You know how life can get and you’ve probably had times when you forgot to pay a bill because you were busy with some crisis at work or with your family. 

With a direct debit, you could be off hiking up Mt. Everest without an internet connection, and you would not have to worry about missing an automatic payment or subscription. It's so convenient. 

How does it work?

When you sign up for a direct debit with a business or company, they will first send you a form to fill out (bunq works differently, but we’ll talk more on that later). You would fill out that form (paper or online, depending on the country and company) and send one copy back to the company and one to the financial institution where you bank (the debiting bank). 

Once this procedure is completed, the company will be able to debit your account for the agreed-upon amount, until the contract finishes or you cancel the contract. 

What are the benefits of direct debit?

There are many benefits of setting up a direct debit for all your bill payments. Let's look at some of them below.

Improves credit score

Paying your bills on time has a huge positive influence on your credit score. When you pay your bills on time every month without fail, creditors will look favorably upon you, which means it will be easier to borrow money when you need it. And you will end up with a better interest rate when you borrow money because creditors trust you.

Comes with a guarantee

When you set up a direct debit with an organization, you are immediately protected by 3 safeguards. 

  • If there is an error in the direct debit scheduled payment, you get an immediate money-back guarantee
  • If the date or amount changes, you get advanced notice
  • You have the right to cancel at any time

With such brilliant guarantees in place, it’s definitely worth taking advantage of direct debit in your day-to-day banking experience.

Saves time and money

Most folks have half a dozen or more bill charges or subscriptions that have to get paid every month on time. Every time, you have to get into your account, find the customer number of the organization you have to pay and send across the payment. It takes time and energy, both of which are deficient in the modern person's life. 

With a direct debit, your bills get paid automatically; you don’t have to do a thing. You can go on living life and your finances are taken care of.

More than that, some organizations may offer you discounts if you use direct debit. This is because it’s quite beneficial to them knowing they get paid on time every month without fail. No one likes to chase payments. 

Gives you peace of mind

Don’t wanna worry about bill payments while on holiday or rushing about your day? Set up direct debit for that ultimate peace of mind. No more getting up in the middle of the night in a panic because you forgot to pay the water bill.

What is it for?

As mentioned, direct debit is quite useful for all those subscription-style payments, ones that come every month / quarter in the same amount. For example, your magazine subscription or your monthly gym membership all fall into this category. 

You could also use it for annual payments, like property tax payments or annual licensing fees (for doctors or other professional organizations). This way you’ll never forget about an important payment.

Can I refuse a direct debit?

Absolutely you can! It’s easy enough to do so, by going into your bank account and declining the direct debit. Make sure you speak to the organization or the company before doing so.

They might assume your payment is late if you don’t inform them beforehand. This could make you go into default mode and that could negatively affect your credit score.

How to approve future direct debits or automatically accept a direct debit at bunq?

At bunq, as with everything else, we make it quite easy to approve future direct debits or automatically accept direct debits. As a bunq user, you don’t have to send us the filled-out form from the merchant. When setting up a direct debit with a company, you can simply write down your bunq IBAN and send it back to the company. 

With personal direct debits, you have 5 days to accept or decline them (before they expire and are automatically declined or accepted based on your settings). With business direct debits, you have 1 day (24 hours) for the same.

To automatically decline them after expiry or to no longer automatically accept them, go to Home > Sub-account > Settings > Automatic Debits.

Learn more on this in our direct debit FAQ section

Ready to try bunq?

If you wanna Make Life Easy, you have to get bunq. It’s called the bank of The Free for a good reason - it will give you freedom and peace of mind over your finances. 

With bunq, you can refuse or accept a direct debit with just a few taps on your phone.

Download bunq and try our app for free (for 30 days). You won’t regret it. 

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