DEFINITION of 'Late Fee'

A charge a consumer pays for making a required minimum payment on a credit card after the due date. Late fees encourage consumers to pay on time and are typically $25 for the first late payment and $35 for subsequent late payments. Some credit card issuers will waive the late fee the first time a consumer misses the minimum payment deadline; other credit card issuers do not charge any late fees at all, but only issue cards to consumers with very good to excellent credit — consumers who are unlikely to ever pay late. Still other cards offer no leniency and will charge a late fee even if you barely miss the payment deadline.

BREAKING DOWN 'Late Fee'

It’s best to pay your credit card bill in full and on time each month, but if you can’t pay it in full, making at least the minimum payment on time means you’ll avoid being charged a late fee. However, don’t think you can outsmart the credit card company by sending a check or scheduling a payment that will arrive before the deadline but that will not clear. If you don’t have enough money in your checking account to cover your credit card payment, not only will your payment still be classified as late, you will also likely incur a returned payment fee from your credit card issuer and a nonsufficient funds fee from your bank.

If you are late making your minimum credit card payment, in addition to paying a late fee, you’ll also have to pay interest. Your account may also be subject to penalty repricing, meaning your interest rate will increase to the penalty APR because the credit card issuer considers you a higher credit risk. Making a late payment might be a simple oversight, but it might be a sign of financial trouble.

Late fees are one of several fees credit card companies charge consumers in order to make money. Credit card consumers are also subject to annual fees, balance transfer fees, foreign transaction fees and returned payment fees. All of these fees are avoidable, however, if you choose the right card and avoid the behaviors that trigger these fees.

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