Late charges apply to all sorts of finance and business dealings when somebody is late in making a payment or completing a certain requirement which was agreed on earlier. It is like a fine for breaking the contract and is used to encourage people to stay on track with the agreement and cover any costs endured because of the missed payment.
A late charge is often applied to loan agreements, whether it be traditional loans or when you become overdrawn in your bank account and the bank had to make the payment for you. The longer you wait before adding the funds to your bank, the bigger the late charge may become.
Late charges often occur when somebody uses store credit to purchase goods which they cannot really afford and have trouble paying it back. This is more common with loans taken out over the Christmas period.
A late charge is the first step before a loan defaults (becomes void) and further legal action is taken against the borrower. This may include the collection of collateral or forced bankruptcy. If a borrower misses a payment they may be given a ďgrace periodĒ which gives them a certain amount of time to make the payment with a late charge on top.
For Example: Mike missed his loan payment, but has a 7 day grace period with a 5% late charge on top. If he still canít make the payment further legal action will be taken and the loan will be considered default.
Some US states have specific late charge laws in regards to store credit or higher purchase and only allow a charge of 1 percent per month to be made. This doesnít apply to conventional loans, which have their own fees.
Late charge fees and other penalties are regularly disputed by credit counseling agencies who claim it isnít fair or practical to charge somebody a fee if they could not pay the original amount in the first place.