Late Fee

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Definition of 'Late Fee'

A late fee is a charge levied by a creditor or lender when a payment is not received on time. Late fees are typically calculated as a percentage of the outstanding balance, and can range from a few dollars to several hundred dollars.

Late fees are often used as a way to incentivize borrowers to make their payments on time. By charging a late fee, creditors can discourage borrowers from falling behind on their payments, which can lead to more serious consequences, such as collection actions or even foreclosure.

However, late fees can also be seen as a form of predatory lending. Critics argue that late fees are often disproportionately high, and that they can trap borrowers in a cycle of debt. For example, a borrower who is charged a $25 late fee may not be able to afford to pay the fee, which could lead to further missed payments and even more late fees.

The Truth in Lending Act (TILA) requires lenders to disclose the terms of their late fees in writing. This includes the amount of the fee, when it is due, and how it will be calculated. Lenders are also required to provide borrowers with a grace period, which is a period of time after the due date during which no late fee will be charged.

If you are facing a late fee, there are a few things you can do. First, try to contact your creditor and see if you can work out a payment plan. You may also be able to get the fee waived if you can show that you were unable to make the payment due to extenuating circumstances.

If you are unable to work out a payment plan or get the fee waived, you will have to pay the fee in order to avoid further consequences. However, you should be aware that late fees can have a negative impact on your credit score.

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