All About Late payment


What is late payment?

Late payment refers to the payment on a loan or other financial obligation after the specified due date. On failure to make the payment on time, the lender requires the borrower to pay a late payment fee according to the debt agreement. Late payments on debt obligations are reflected on the credit report impacting the borrower’s credit history in the long run. As a result, the borrower may face a hard time getting credits in future.

KEY TAKEAWAYS

  • Late payment is when the borrower pays for a loan or other debt obligation after the specified due date.
  • Lenders charge late payment fees to ensure timely payments by the borrowers.
  • Late payments impact the borrower’s credit score, making it difficult to avail of credits in the future.
  • For disciplined and timely EMIs, one must evaluate monthly income and expenses, plan the monthly payments effectively and maintain an emergency fund.

Why do lenders charge a late payment fee?

Lenders charge a late payment fee due to the following reasons:

  • The main idea behind charging a late payment fee is to encourage the borrower to make payments on time.
  • Frequent late payments indicate a risk of default that may pose financial problems to the lender. So, the late payment fee acts as a warning sign that nudges the borrower to make payments on time.

Reasons to avoid late payment of EMIs

Late payment of EMIs has serious consequences for the borrower that may include:

  • Late payment fee and penalty: In case of late payment of EMIs, the lender charges a late payment fee or penalty inflating your outstanding account balance. Also, the lender may review and change the interest rates based on your payment history.
  • Fall in credit score: Late EMI payments are recorded in the credit report, which has a lasting impact on your credit history. Official reporting of consistent late payments indicates a lack of creditworthiness due to which lenders would be cautious about lending you in future.
  • Increased interest rate on loans: If your credit history reveals frequent late payments on EMIs, the lenders may lend to you at a higher interest rate in the future.
  • Difficulty in getting credit in future: A drop in credit score due to late payments may lead to difficulty in getting credit in future. Even if a lender accepts your loan or other credit application, they may lend you a smaller sum at a higher interest rate to compensate for the risk of loss.
  • Risk of asset loss: Repeated late payments and ultimate default in the case of a secured loan leads to seizure of your pledged asset by lenders to recover the borrowed sum.

How to avoid late payment

Owing to its serious consequences, late payments must be avoided as much as possible. Some of the ways to avoid late payment are as follows:

  • Implement a proper budget: Evaluating your monthly income and expenses is essential to save enough from your monthly income for EMIs. You may lose track of your payment obligations in the absence of a proper monthly budget.
  • Plan your spending: Loans or other debts involve a long-term commitment of monthly payments. So, it is essential to plan your monthly spending, keeping the EMIs in mind. If you face repayment issues, avoid wasteful expenditure until the debt is repaid.
  • Maintain an emergency fund: Fulfilling debt obligations becomes difficult if you lose your regular source of income. So, maintaining an emergency fund is crucial to ensure you don’t delay or miss your EMIs. It allows you to pay off your debt obligations for some time if you lose your source of income.
  • Plan EMIs effectively: In the case of multiple borrowings, it is crucial to plan the EMIs effectively. You should pay off the EMIs with higher interest rates and then with the lesser rates.
  • Extend the loan tenure: An effective way to manage EMIs during a financial crunch is to extend the loan tenure after communicating with the lender. A longer loan tenure helps reduce the quantum and makes the EMIs affordable for you.
  • Postpone your EMI: Convincing the lender about postponing your EMI instead of delaying it is another way to avoid late payment charges.

When can a lender not charge you late payment fees?

There are certain situations when a lender does not charge you a late payment fee. The first situation is during the grace period. The grace period refers to the period after the due date during which you can make the payment without attracting a late fee. It means despite being overdue the payment is not reported as late if you pay within the specified grace period. Grace periods are sometimes mentioned in the loan agreements but are usually considered an unwritten rule followed by lenders. It is to be noted that borrowings through credit cards do not come with a grace period.

Sometimes lenders do not charge a late payment fee if the borrower generally pays on time but is late for the first time. However, this is not followed by all lenders. So, you must be punctual in your payments.

The third scenario when the lender does not charge a late payment fee is when the borrower ultimately defaults on the repayment. The lender cannot charge a late payment fee in case of payments due after the filing of a foreclosure complaint. A foreclosure filing refers to the legal action taken by the lender when the borrower defaults on the debt repayment. It is filed to win the right to sell the borrower’s pledged asset.

Final words

Loans and other debt instruments require a long-term commitment and timely repayments. So, before opting to borrow from financial institutions, it is necessary to assess your repayment ability, as late payments or defaulting on the debt obligation can have a lasting impact on your credit history. Despite having a regular income, maintaining an emergency fund can come in handy for EMIs during unforeseen circumstances. Also, remember to contact your lender at the earliest if you are having difficulty in repayment to avoid late payment charges and a poor credit score.

Other Words

  • Line of Credit
  • Loan Agreement

Apply for A Loan

Business Loan Logo

Business
Loan

Business Loan Logo

Business
Loan

Professional Loan Logo

Professional
Loan

Professional Loan Logo

Professional
Loan

personal loan Logo

Personal
Loan

personal loan Logo

Personal
Loan

Car Loan Logo

Pre-Owned
Car Loan

Car Loan Logo

Pre-Owned
Car Loan

Medical Equipment Loan Logo

Medical Equipment Loan

Medical Equipment Loan Logo

Medical Equipment Loan

Machinery Loan Logo

Machinery Loan

Machinery Loan Logo

Machinery Loan

Loan Against Property Logo

Loan Against
Property

Loan Against Property Logo

Loan Against
Property

Apply for A Loan

Contact Us logo Quick Apply CIBIL Score logo Free CIBIL Whatsapp logo Connect on WhatsApp