What is a Late Payment?

A late payment is a failure to make a timely payment on a debt obligation on an agreed upon due date. Late payments can occur on any type of debt obligation, whether that be mortgages, credit cards, auto loans, personal loans, student loans, home equity lines of credit, etc. Late payments can occur at any time in the billing cycle so long as you technically missed a due date, even if it’s just 1 day late. However, a late payment will typically not be reported late to the credit bureaus until a consumer is at least 30 days late. You may however be charged a late fee as soon as a payment is late.

Late Fees

Late fees stink, nobody likes to pay late them but they exist for a reason. Besides being used as a monetary penalty for missing payments, late fees aim to prevent people from missing payments altogether. They can run anywhere from $5 to $100 but they typically tend to be somewhere in the $25 to $50. Late fees can be charged for every month a payment is missed. They can also be waived on one-offs and rare slip ups that occur. If you’ve gotten a late fee due to a slip up or legitimate reason reach out to your bank and they may be able to waive it for you, this is much more likely if you are less than 30 days late.

Interest Charges

Whenever you miss a payment interest still accrues on the account. However, if a payment was missed the interest charges will increase significantly and can really become a thing to adversely impact your financial situation. The interest related charges of missing a payment are typically much more significant than that of a late fee, especially if you are multiple months behind on a payment. Minimum payments can balloon from $25 to $200-$500 in just a matter of months due to missed payments so it’s something to always be mindful of.

Interest Rate Increases

When you miss a payment it’s highly likely that your interest rate will increase due to it. Missed and late payments negatively affect your credit worthiness in that 35% of your credit score is derived from payment history. So, when you miss a payment it’ll also have the negative affect of making interest rate increases occur sometime after the missed payment. In many scenarios, if you miss a payment credit card companies can raise your interest rate whenever they like since a missed payment constitutes a breach of that credit card agreement.

Universal Default

With universal default your actions on one credit account or debt obligation can negatively impact your own other accounts. For example, if you default on a credit card, your other creditors may eventually get wind of us and penalize you on other accounts; leading to interest rate increases, credit limit slashes and even complete closure of accounts. Many creditors look to protect themselves when they see that you’ve come on difficult financial times. Due to this, your access to credit in the short term can be severely affected by missed or late payments.