Outstanding & Overdue Payments - Everything You Should Know

If you’ve ever taken a loan or used a credit card, you’d have likely encountered the terms outstanding and overdue payments. Outstanding payment essentially refers to the total amount due to be paid, irrespective of the due date. On the other hand, overdue payment means an outstanding payment for which the due payment date has passed.

In this comprehensive guide, we’ll delve into the concepts of outstanding and overdue payment in depth. In addition, we’ll also provide you with effective strategies for dealing with them. Read on to know more!

What are Outstanding Payments?

Outstanding payments are payments that you need to pay to your lender, creditor, or service provider on or before the due date. Outstanding payments mean that you still have time to pay them and should pay them before the due date.

For example, you take a Personal Loan, and the EMI due date is the 5th of every month. If you do not pay the EMI on or before the 5th, the unpaid amount will be considered an outstanding payment.

What are Overdue Payments?

Overdue payments are the amounts that a borrower has failed to pay by the due date. When the borrower fails to repay the loan EMI instalment, credit card payment, or any other loan payment, the payment is marked as overdue.

Overdue payments are not only accompanied by late charges and penalties but also have a direct impact on the credit report and credit score. The earlier an overdue payment is settled, the less damage it will cause to the credit score.

To make it simpler:

• Outstanding payments: Amount that is to be paid on or before the due date.
• Overdue payments: The amount that a borrower has not paid by their due date.

Key Differences Between Outstanding and Overdue Payments

Here are the main differences between outstanding and overdue payments to help you understand them better:

How Do Outstanding and Overdue Payments Affect Your Credit Score?

Your credit score is a reflection of your financial behaviour, and repayment history is one of the most important factors that determine your credit score calculation. Here's how outstanding and overdue payments affect your credit score:

1. Outstanding payments: If you settle your outstanding payments on or before the due date, they do not damage your credit score. However, large outstanding dues can increase your credit utilisation ratio, particularly in credit cards, as they raise the percentage of credit used against your total credit limit.
2. Overdue payments: These are reported to credit bureaus, which can lower your credit score significantly. Even a single overdue payment can stay on your credit report for years, and lenders will be reluctant to provide you with loans or credit cards in the future.

Why Do Outstanding and Overdue Payments Occur?

There are several reasons why individuals have outstanding and overdue payments. Some of them are:

• Poor Budgeting: Not being able to budget income and expenses efficiently will lead to late payments.
• Overspending on Credit: Excessive use of credit cards without a repayment plan will accumulate dues.
• Unexpected Expenditures: Medical needs, unexpected travel, or an unexpected repair can derail your payment plan.
• Lack of Reminders: In some cases, borrowers may miss their payment deadlines due to forgetfulness or the absence of timely reminders, leading to overdue payments.
• Cash Flow Problems in Business: For businesses, late payment on receivables usually leads to overdue invoices from vendors or suppliers.

Consequences of Overdue Payments

Continuous overdue payments can have a major effect on your finances, as follows:

• Late Payment Charges: Most lenders or service providers impose a penalty on overdue or late payments.
• Interest Accumulation: Overdue payments keep accumulating interest, adding to your total debt burden.
• Decreased Creditworthiness: Other lenders may not grant you future credit easily.
• Legal Action in Extreme Situations: Continuous overdue or late payments can result in legal notice and recovery action, such as account freezing, repossession of pledged assets, or recovery proceedings through collection agencies, based on the type of loan.

How to Manage Outstanding and Overdue Payments?

Here are some useful tips to manage outstanding and overdue payments efficiently:

1. Create a Repayment Calendar

Always remember or note down the repayment dates of your loans, EMIs, and credit card dues. Reminding yourself by keeping reminders on your mobile phone or by enabling auto-debit for EMIs will help you pay on time.

2. Pay Overdue Payments in Priority

If you already have overdue payments, pay them before outstanding payments. This will reduce penalty charges and prevent further damage to your credit record.

3. Opt for Balance Transfer or Loan Consolidation

If you feel that it's too difficult to pay all the overdue and outstanding payments together, consolidate them into one loan with a low EMI. Also, a balance transfer can reduce your interest burden, as it helps you shift your existing high-interest loan or credit card dues to another lender offering a lower interest rate.

4. Have an Emergency Fund

An emergency fund will prevent unexpected expenses from ruining your repayment plan. Even a few months of savings can bail you out of late payments.

Tips to Avoid Outstanding and Overdue Payments in the Future

Discipline, efficient planning, and excellent money management skills are necessary to prevent overdue payments. Here are some helpful tips to manage your finances properly:

• Spend Within Your Financial Capacity: Avoid the temptation of overspending, especially on credit cards. Take loans for the amount that you are confident you will be able to pay back on time. This keeps outstanding payments low and reduces the chances of getting turned into overdues.
• Pay More Than the Minimum: With credit cards, paying only the minimum keeps your account active but causes interest to accumulate on the remaining balance. Always try to pay the full bill amount, or at least more than the minimum, to avoid high interest charges.
• Track Your Finances Every Month: Review your income, expenses, and payment dues at the end of every month. Reduce unnecessary expenses so that you always have sufficient funds to repay on time.

To Conclude

Timely credit repayments are not just helpful to avoid penalties; they're also important for increasing your credit score and increasing your chances of getting approved for loans in the future. Making timely payments can help you get loans at affordable interest rates, higher credit card limits, and improve your financial position overall.

However, missing or delaying payments can impact your credit score negatively. Even small delayed payments can lead to major financial loss. Therefore, manage your outstanding and overdue payments wisely for a better and stronger financial standing

Frequently Asked Questions

Can outstanding payments ever turn into overdue payments?

Yes, if you don't clear your outstanding payments by the due date, they automatically become overdue.

Can credit options other than loans and credit cards affect my financial credibility?

Yes, even utility bills, rent, or vendor invoices marked overdue can impact your financial credibility.

How soon do lenders report overdue payments to credit bureaus?

Most lenders report overdue payments to credit bureaus after 30 days of non-payment.

Can partial payments stop a due amount from becoming overdue?

Yes, making partial payments can lower the total amount owed; however, the remaining balance might still be deemed overdue if the entire amount is not paid by the deadline.

Is there a way to reduce penalties on overdue payments?

You can request a waiver or restructuring of credit from your lender, though approval depends on your repayment history.