A Complete Guide on Processing Loan Payment Through ACH

“I need to collect your information for loan payment through ACH,” the agent told me.

“Through what?” I asked, completely confused.

“Well, ma’am, you need to submit a few details for my bank to collect the EMI from your account every month,” the agent responded.

“So, do I need to do this every month? This seems like a hectic process,” I replied.

“Not at all, ma’am. This is a one-time process that will take just a couple of minutes. I will ensure that my bank collects the EMI amount from your account every month directly by submitting the details that you give me. You see, banks are smart enough to communicate that way. So, after this one-time setup, you never have to worry about paying your EMI timely. The banks will take care of it automatically!” the agent replied.

“How cool! What details do you need?”

EMI stands for Equated Monthly Installment. It is the amount that the borrower needs to pay the lender every month for the specified period.

You can expect to have a similar conversation with your loan agent the first time you apply for a loan. The most experienced loan agents make the overall loan application and payment process super simple for their customers. Most small business owners and individuals rely on the National Automated Clearing House Association (Nacha) network to pay their bills and EMIs automatically.

Schedule a Call to Discuss Your Payment Technology Requirements

Setting Up Loan Payments Through ACH

Use this guide to start making your EMI payments through ACH payments processing.

Step #1: Prepare your Account for ACH Payments

In the final stages of your loan application and approval process, your loan agent will ask you how you would like to pay the EMI. If you don’t know a lot about the payments network, most agents will recommend a few options themselves. One of the top methods that your agent will recommend will be ACH payment solutions.

If you choose to process your EMIs through ACH payments, the agent will ask you to fill a form, and in some cases, sign a couple of post-dated paper checks for the EMI amount. Some of the details that the agent will collect on that form include:

  • The Bank Account Number: Here, you will have to fill in the savings or checking account number through which you wish to pay your EMI. Most people list their primary account here (which has enough balance to honor the upcoming payments).
  • Type of Payment: Recurring or Single. If your loan repayment tenure is longer than a month, you need to select recurring here.
  • Lender details: You can leave this section blank for the lending bank agent to fill. It contains the details of the account to which you need to make the EMI transfer.

If you have trouble filling out this form, ask for help. Do not scribble or submit documents with a lot of corrections on them. If you make a mistake while filling out the form, ask for a new one instead of crossing out details and refilling any section.

You can also rely on a Nacha preferred partner to understand the basics of alternative payments using ACH and credit card payments.

Step #2: Choose the Right Entry Class Code

Once you have filled out the essential details, you will need to choose the correct standard entry class code for the bank to process the payment.

Step #3: Fill out the Necessary Authorization Forms

The final stage of loan payment through ACH includes authorization. Nacha has placed several checks and balances in place to prevent fraudulent transactions and process payments seamlessly. To send money from the originating depository financial institution (ODFI) to the receiving depository financial institution (RDFI), Nacha asks for authorization first. The authorization enables the lending bank to collect money from your account on a set timeline (usually every month).

Note: If you are using a joint account to pay the EMIs, make sure that both you and the other joint account holder sign the authorization form correctly.

Step #4: Report any Mishaps Quickly

That’s it. You’re all set! Now the lending bank can receive recurring payments directly from the account of your choice without the need for any manual input from your end. If you follow this process to the tee, the chances of a fraudulent transaction appearing on your statement are nearly zero. However, just in case you detect an unsolicited transaction on your bank statement, you should reach out to the concerned bank and the payments processor quickly.

With loan and alternative payments using ACH and credit cards, you can seamlessly automate a significant chunk of your business payments.

Download a Full Catalog of Innovative Payment Solutions

Why Pay with ACH?

As discussed, the lending bank agent will give you a couple of different options to pay the EMI back. So, why should you prefer ACH payments over other methods? Here are a couple of great reasons why:

Low Processing Fees

People prefer loan payments through ACH solutions due to its low transfer fee. Compared to card transactions, or wire transfers, which can charge you anywhere between 2-3% of the transacted amount as fees, ACH transfers usually have a flat 25 – 50 cent transfer fee. Although this amount seems less, it can rack up quickly for recurring payments.

Faster Processing

Most efficient payment processors offer same-day or next-day transfers. The ACH payments network that was previously known for offering notoriously low transfer speeds can now complete the transfer within 2-3 business days at max.

Automated Transfer

Unlike other modes of payments, you don’t need to manually send or receive payments through ACH technology if you set it up for a recurring basis the first time. So, the chances of you missing out on your payment and screwing up your credit score go down drastically.

Easier Tracking

Banks keep a comprehensive record of all ACH transfers through easy-to-understand codes. So, ACH makes it easy for you to track your expenses and income on your monthly bank statement.

Secure Network

The federal reserve and Nacha work hand in hand to make ACH payment one of the safest modes of money transfer in the country. Reliable third-party apps often offer an additional layer of security and data collection to prevent fraudulent transactions. They also help you track your expenses and income to measure the growth of your business in real-time. Moreover, some third-party payment processors offer additional check verification services to protect both the lender and the borrower from unnecessary returned check fees. This in turn helps with increased check acceptance and improved bottom line profits!

ACH as a technology is just getting more efficient every day. With faster processing, lower transaction fees, and seamless tracking, it is the preferred mode of sending and receiving payments throughout the country. Schedule a call with us today to know more about loan payments through ACH.

Schedule a Call to Discuss Your Payment Technology Requirements


Date originally published: January 25, 2022

iCG Pay’s innovative solutions help you accelerate payments simply, securely, and reliably.

We help businesses accept and process payments with our suite of next-gen customizable fintech solutions. Our automated technologies help you carry out ACH and credit card transactions on a single easy-to-use platform.