What Is a Late Fee?

A late fee is 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 may be as high as $29 for the first late payment and $40 for a subsequent late payment. 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—individuals who are unlikely to ever pay late. Still other cards offer no leniency and will charge a late fee even if a cardholder barely missed the payment deadline.

Understanding Late Fees

It is advisable to pay a credit card bill in full and on time each month, but if a cardholder cannot pay in full, making at least the minimum payment on time means he or she can avoid being charged a late fee. If the cardholder's checking account does not have enough money to cover the credit card payment, not only will the payment still be classified as late, the cardholder will also likely incur a returned payment fee from the credit card issuer and an insufficient funds fee from the bank.

How Late Fees Can Increase Outstanding Balances

Late fees may be incurred on other types of accounts if payment is not received by its due date. Insurance payments, rental fees and other structured payments that follow a schedule may be subject to late fees if the due date is missed. The penalty may be increased as more time passes between the date the payment was expected and when it is finally received. Late fees may be rolled into the outstanding balance and then become subject to interest, further compounding the amount a borrower owes.

If a cardholder is late making the minimum credit card payment, he or she will have to pay interest in addition to a late fee. The account may also be subject to penalty repricing, meaning the interest rate will increase to the penalty APR because the credit card issuer considers the cardholder a higher credit risk. Making a late payment might be a simple oversight, or it could 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 the cardholder carefully selects the credit card, follows the terms and avoids behaviors that trigger such fees.