HomeMoneyWhat’s the Better Bargain: Automatic Payments or Paying in Advance?

What’s the Better Bargain: Automatic Payments or Paying in Advance?

A while back, I asked you whether you make automatic payments each month to pay down your debt and fund your investment accounts or if you pay in lump sums instead. I was surprised by how many of you told me that, like me, you make quite a few lump sum payments, whether on their own or in tandem with regular monthly payments.

I’d always assumed that making those lump sum payments was the smarter way to go, not just with debt and investments, but with everything. Car insurance premiums? Pay in full! Magazine subscriptions? Sign up for a whole year! I’d seen so many blog posts touting the benefits of early (and complete) payment for services that I started to believe this was always the better option.

That is, until I signed up for a gym membership. Always looking for a discount, I offered to pay in advance for an entire year; this negotiation method had routinely worked for me in the past. So what the membership clerk told me shocked me. “We don’t offer discounts if you pay in advance,” he said, “But we do give you your first month’s dues for free when you sign up automatic payments month to month.”

When Automatic Monthly Payments Are Better

This episode at the gym got me thinking – how many other products and services would cost me less if I signed up for automatic payments instead of paying a lump sum in advance? I decided to do a bit of research to find out:

  • Student loan payments: Sallie Mae, one of the nation’s biggest student loan lenders, urges borrowers to sign up for automatic payments, saying on its website, “you may be eligible for an interest rate reduction on eligible loans” with those monthly drafts. says this is one of the most common discounts for student loans, and typically is worth a decrease of a quarter of a percentage point off your loan’s interest rate.
  • Business loans: Wells Fargo offers new customers a 0.25% rate discount when they sign up for automatic payments directly from an in-house checking account, while Express Equity and Refi customers get a one-time $250 credit when they set up monthly drafts.
  • Credit cards: Last year, Discover Card offered a 2% CashBack bonus on most telecommunications purchases and services (purchases in this category are usually eligible for Discover’s standard 1% CashBack bonus program) set up with automatic bill pay through Discover.
  • Sirius/XM: This satellite radio provider is among the many companies that charges you a fee for an invoice. The $2 fee can be avoided if you sign up for automatic renewal with your credit card; Sirius/XM also offers an additional discount (such as one month free service, or 10% off the subscription price) if you sign up for these automatic payments.
  • Insurance premiums: Although monthly payments – whether made automatically or not – will cost you move in insurance premiums with most providers, signing up for automatic annual or biannual payments can net you a discount. AllState, for example, offers a 10% discount if you sign up for automatic drafts. This is kind of a crossover, where you get a financial boost for paying in advance with those automatic payments.

Do you know of any other companies or industries that offer discounts if you sign up for automatic payments? Which industries reward you for making lump sum payments well in advance?



  1. Outside of the ones you listed I can’t think of any other service that I use personally for automatic payments. What I try to do is to set up auto payments in my budget and if I find savings in other places either use it to pay down additional debt/premiums or just save. I think the important thing is to not only get the best value dollar wise but to make sure you are comfortable with the opportunity costs of your decisions :) Great post!

  2. This is definitely something that you have to keep your eye on. My insurance will knock off a few dollars each month if I pay via automatic deduction. It all really depends on what service, but there is nothing wrong with checking.

  3. Automatic Payments or Paying in Advance both have its pros and cons but I want to go with “Automatic Payments” as it is much better than paying in advance in most of the cases specially in the case of services. If you are buying a car or any other product then Paying in Advance may be right choice.

  4. I pay several of my pills with auto bill pay but don’t get a discount for doing so. Maybe I should ask? I did get an interest rate drop for signing up for auto pay on my student loans, when I still had them, which was great.

  5. Providers love automatic payments. You set it and forget it, and the money just keeps coming in.

    When you make a large lump sum payment, you have to repeat the decision in six months, a year, etc. Customers on autopay have a much longer longevity, and lifetime value.

    Those trying to save money may find they spend much more with automatic payments because they don’t think about the payments.

    The government learned this trick years ago with payroll tax withholding. If taxpayers made one lump payment every April 15 there would be a huge revolt, much lower taxes, and a far smaller government spending.

  6. I prefer automatic payments because you don’t have to worry about anything and the chance that you forget about making the payment is zero. It’s super convenient.

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