A late payment fee is a penalty charge to a borrower who made payment on a debt obligation after the due date expressly specified.
Sometimes lenders are magnanimous by allowing a certain grace period after the due date before clocking in a payment as late.
This means that even though a payment might be overdue as it has exceeded the due date, it might still not be reported as a late payment if the required payment amount is made within the grace period.
Officially reporting them can have an adverse effect on the borrower’s credit report.
These grace periods can sometimes be written into loan contracts. But are often an unwritten rule that is practiced by lenders.
When a payment is officially recorded as late by a lender, then it would imposed late payment fees in accordance to the loan agreement that was signed by both parties.
How much are late payment fees?
The amount that a borrower has to incur for lateness in payment would vary from product to product.
The three common methods for lenders to calculate this charge are:
- Flat fee
- Percentage of overdue balance
- Percentage of full outstanding amount
Because of competition between banks, the same type of products usually apply the same type of late payment charges across most (if not all) lenders.
Flat late payment fees charge a flat amount on the borrower no matter how big or small the debt is. They are common for personal loans.
For example, a late payment can mean administering a $100 charge.
The percentage of overdue balance method can often be observed in mortgages. Homeowners who incur overdue balances can find a percentage of the overdue amount as the late payment fee.
This percentage can consist of an index such as the prime rate plus an additional interest such as 4.5%.
In addition to this, banks usually set a minimum sum of late payment to compensate them with.
For example, if a percentage late charge of the overdue balance is calculated as $40, the lender might have a minimum late fee of $50 or $100. And the borrower would have to pay the minimum fee for each late payment.
Credit cards are renown for imposing late payment charges on cardholders.
This is because unlike home loans or car loans, such fees make up a bulk of the revenue generated directly from consumers.
They also usually come with very high penalty interest rates for accounts in late payments status. This is in addition to the late payment charge.
However, it is important to differentiate between finance charges and late payment fees.
Getting late payment fees waived
Some years ago, it was pretty easy to get late payment fees waived by banks and card issuers by just giving customer service a call.
But it is becoming an increasingly tough challenge in recent times.
You’d think that this is because banks are struggling to squeeze out profits from operating activities due to the struggling economy.
But that thinking would deemed ridiculous when we observe that banks are reporting quarterly profits that go into the billions.
These days, automated telephone answering machines attend to callers who dial the hotline to the lenders’ customer service. Requesting for fee waivers would be as easy as pressing a few buttons on the phone.
But they seldom bear fruit.
The best chances one would have is to stay on a call and navigate his or her way to a real natural person on the other end of the line to speak to. Explain why you think you reasons for late payment is warranted and why the bank should have a lenient view and approve waiving the late fee.
If the service representative has the authority to waive these charges, they would often do so if you are polite enough, in a good mood, and you really have legitimate reasons to be sympathetic with.
And in the case of credit cards, it’s best to repay any outstanding amount before making such requests.
It would be difficult to approve anything for any account in arrears.
The late payment fee which you have paid by paying off the credit card balance can always be credited back into you account.