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Pre-authorized payments, also known as pre-authorized debits or PADs for short, are amounts that you permit a company or financial institution to debit your bank account or credit card when bill payments are due. The amount can either be fixed or variable depending on the merchant’s charge. PADs are helpful because they allow you to operate your finances on autopilot. To learn more about pre-authorized payments, continue reading below. 

What Is A Pre-Authorized Payment On Your Credit Card?

A pre-authorized payment agreement allows a merchant to automatically deduct amounts that you previously committed to from your credit card. For example, you can set up a PAD agreement with your cell phone service provider to deduct fees automatically rather than have to deal with monthly bills and risk forgetting to pay on time.

To set up a pre-authorized payment, you will need to sign a contract permitting a merchant with whom you have a regular subscription, to deduct the payment amount from your credit card. Pre-authorized payment amounts can be either variable or fixed. As an example, your subscription to an online streaming service will likely incur the same charge for each billing cycle, but you may be charged differently by your cellular service provider each month based on usage.

Budget Breakdown

Benefits And Drawbacks Of A Pre-Authorized Payment

The main features of a pre-authorized payment are convenience and simplicity. However, there are several other factors to consider, as listed below. 


  • Not having to worry about bills being paid on time
  • Take advantage of cash back or reward programs offered by your credit card
  • Frees up cash flow as merchant charges are not payable until your credit card payments are due


  • Credit limits must always be sufficient for pre-authorized charges, returned payments may result in fees or penalties
  • Any billing errors may be harder to rectify as the charge has already gone through and you need to wait for the merchant to issue a refund
  • Not all vendors offer pre-authorized payments for credit cards

Why Should You Use Pre-Authorized Payments?

Pre-authorized payments are a convenient way to ensure that your bills and any other financial obligations are paid on time. Since the charges will be deducted automatically, you don’t need to stress about when your bills are due. Additionally, many credit cards now offer accelerated cash back or rewards points for recurring bill payments providing you with rebates on your expenses or allowing you to save toward your next redemption.

Are Pre-Authorized Payments On My Credit Card Safe?

Even with a PAD set up, consumers should reconcile their monthly statements to see what they were actually charged. This is because mistakes do happen and merchants that are pre-authorized to deduct variable amounts may end up under or overcharging.

Trying to get the funds back after being overcharged may be a frustrating experience for the consumer, as customer support departments are not always efficient in resolving the issue. Additionally, there may be delays in returning the funds to your account which will lead to a short-term reduction of your available credit limit.

Can you transfer money from your credit card to your bank account? Find out here.

How Do I Add A Pre-Authorized Payment On My Credit Card?

A signed agreement will be required to set up a pre-authorized payment on your credit card. For merchants with online payment methods, this usually involves saving your card details on their website and agreeing to the terms and conditions of recurring pre-authorized debits. 

Typically, you will have the option of cancelling or changing your payment method online as well. For merchants that cannot facilitate a PAD agreement online, they will send you a form to be signed and returned which outlines the pre-authorized payments and how to make any updates to the payment method or to cancel the agreement.

Click here to learn about your rights and responsibilities of owning a credit card. 

How Do I Cancel A Pre-Authorized Payment On My Credit Card?

The most common reasons for cancelling a pre-authorized agreement include the cancellation of a subscription, such as for an online streaming service you no longer use, and a change in address, such as stopping payments from previous utility providers. 

To cancel a pre-authorized payment on your credit card, you should contact both the merchant and your credit card issuer. Submit a letter of cancellation to your merchant notifying them of your decision to cancel the existing PAD agreement and make sure to also request a confirmation of the cancellation in writing. If your card details were saved with a web-based merchant, you may be able to remove your payment method and cancel further pre-authorized payments online without having to write anything. After notifying the merchant, you should also contact your credit card issuer in writing regarding your decision to cancel the pre-authorized charges to your account.

However, note that cancelling a pre-authorized debit agreement does not relieve you of your duties to pay the merchant for any goods or services that have already been provided. If you have any issues with cancelling the PAD agreement or if you are still being charged, you can request a stop payment through your credit card issuer. For contracts stipulating that pre-authorized agreements are mandatory for payments, it is advised that you consult a personal finance professional or lawyer prior to cancelling the pre-authorized payment. 

Using Pre-Authorized Payments For Peace Of Mind

Pre-authorized payments on your credit card are a helpful automated service that many vendors provide. By putting all your regular bills on pre-authorized payments, you’ll have peace of mind that your bills will be paid on time and in full. Keep in mind that you’ll still need to be mindful of your finances and amounts deducted. But overall, pre-authorized payments are an excellent financial tool. 

Veronica Ott avatar on Loans Canada
Veronica Ott

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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