Glossary

Late Payment Fee

A late payment fee is a charge imposed on a borrower or cardholder for not meeting the minimum payment requirement by the due date specified in their credit agreement. This type of fee is commonly found in financial arrangements such as credit card accounts, auto loans, mortgages, and other forms of personal and business loans. The primary purpose of a late payment fee is to incentivize timely payment, ensuring that lenders or creditors maintain a steady cash flow and that borrowers adhere to their financial commitments. Additionally, these fees compensate the lender for the increased risk and administrative costs associated with managing late payments. Late fees also generate additional revenue for the lender, which partially offsets losses from delayed payments. By imposing such fees, creditors aim to encourage better payment discipline among borrowers, thereby reducing the likelihood of defaults and disruptions in the credit management process.

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