A direct debit is an instruction made by a customer to their bank or building society to make regular payments direct from their account. These are usually associated with bill payments and are often paid from the customer on a monthly basis.
Many people confuse direct debits with standing orders, but there is a crucial difference between the two. A standing order is always for a specific amount that cannot be changed by the person receiving the amount. It also occurs on a specified date or dates, such as monthly or quarterly, for instance. A direct debit is more flexible in that the customer is authorising the bank to pay a third party on a regular basis whenever such payment is due.
Hence why the direct debit format is perfect for mortgage payments, utility bills, and anything else that may change from time to time. If you take out a mortgage on a one-year fixed rate deal, you will know in advance what you will pay each month. Your bank will send the exact amount to the lender on an agreed date each month.
At the end of the fixed deal, you will either move onto a new fixed rate deal or be switched to a variable rate deal. Either way, your monthly mortgage payments are likely to change. With a direct debit, this is not an issue, as the payments can be altered without you needing to do anything to approve it. You must, however, receive confirmation of the new monthly payments and the dates on which they will be taken. This is a key aspect of the direct debit system, as it allows you to stop the direct debit or query it in advance of payments being made.
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