What Are Late Payment Fees?

Late payment fees, also referred to as “late fees” are quite self-explanatory. Whether you take out a payday advance loan, a loan from the bank or any form of borrowing from any lender, late payment fees will usually be a part of the contract.

The term late payment fee refers to a charge a consumer must pay, should they fail to make a prompt payment on a debt. When you miss a payment, the organisation you have borrowed from will add this fee to the outstanding balance, which will increase month on month.

It is clear that a late payment fee will involve some form of payment if you are unable to pay back your loan on time, but how do these work? We have broken down late payment fees for you, so you can borrow money with ease.

How Late Fees Work

The aim of a late payment fee is to encourage those who borrow to pay their debit back on time, within the specified timeframe outlined within the agreement or contract. Whenever changes to late fees occur, the lender must notify the borrower in advance to ensure they are aware of these changes via written form.

Lenders and other forms of creditor make their money in a variety of ways, including charging borrowers and debtors’ fees, such as late payment fees. Late payment fees will only be imposed upon individuals who do not fulfil their previously arrange financial obligations by the specified date.

By law, all late payment fees must specifically outline the terms and conditions to the borrower, stated clearly within the agreement they have signed. Lenders cannot charge excessive late fees by law, so the charges are reasonable.

What if I Have Been Charged a Late Payment Fee?

Every creditor and lender operate differently. Many will offer a grave period, but you must read the terms and conditions of your individual contract to fully understand whether or not this is relative to you and the money you have borrowed. You should also be aware that late payments can also have a negative impact on your credit score. Each company calculates your eligibility in their own way, but many do take your previous financial history into account, which includes your credit score. This is done because overdue payments can be indicative of an individual who struggles to manage their finances. This may result in you not meeting the criteria, and ultimately being rejected from taking out a loan in the future.

How Long Will the Impact of Late Payments Last?

If a late payment fee is recorded on your credit score, it will usually stay there for six years, which is a major reason you want to avoid this. Even so, its impact on your credit score will reduce within this time period, as lenders usually tend to pay more attention to your current affordability, your most recent credit history and whether they deem you to have the means of paying back the loan in the near future. If you are able to keep up with future loan payments, within any late payment fees, it should make it easier for you to get approved for credit at better rates.