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What is a Direct Debit?

Posted 25 February 2013

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This guide will tell you more about Direct Debits, such as how they work and the benefits when compared to other payment methods.

A Direct Debit is an agreement between you and your bank or building society, which authorises them to let an organisation take a payment - or regular payments - from your account.

What are the benefits of paying by Direct Debit?

The benefits of paying by Direct Debit include:

• The right amount will leave your account at an agreed time.

• It saves you time and the stress of remembering when all of your payments are due.

• Payments made by Direct Debit are protected by the Direct Debit Guarantee. This means that if an error is made, you're entitled to a full and immediate refund. Read the Direct Debit Guarantee here.

• The amount, date or frequency of your Direct Debit cannot be changed without the company giving you advance notice.

• Some companies (especially utilities providers) will give you a discount if you pay by Direct Debit.

• You can stop a Direct Debit at any time - although it's recommended that you contact the organisation you've been paying first.

How are Direct Debits different to other payment methods?

The main difference between a Standing Order and a Direct Debit is the fact that you set up a Standing Order with a company and you control how much you pay. This payment doesn't change until you change it. With a Direct Debit, the company you're paying is in control - they can ask your bank to change the amount of your payment.

A Continuous Payment Authority is another type of regular automatic payment you set up using your debit or credit card - not with your bank.

Direct Debits are protected by the Direct Debit Guarantee - whereas Standing Orders and Continuous Payment Authorities are not.

by Sarah Symons

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.