Preauthorized Payment

Prearranged deductions from a bank account for the payment of a third party.

Automatic transfer of funds from a borrower's deposit account to pay down a loan or obligations owed to third party creditors. A payment schedule is set by written agreement, establishing the amount to be debited, and the date the funds are to be transferred. Payments to third party creditors are sometimes made by preauthorized check, a check-like instrument debiting the borrower's account, but more often are made by electronic transfers. See also Automated Clearing House; Value Date.