Late Fee
A penalty charged to a borrower who fails to make a required payment by the due date.
What is Late Fee?
A late fee is a penalty charge assessed by a lender or servicer when a borrower fails to make a required payment by the scheduled due date or within an applicable grace period. Late fees apply to mortgages, credit cards, auto loans, student loans, and other credit products. For mortgages, late fees are typically 3–5% of the overdue payment and are charged after a 15-day grace period under federal law. Credit card late fees are capped by regulation—the CFPB rule effective 2024 capped credit card late fees at $8 per occurrence. Beyond the direct cost, missing payments that exceed 30 days past due are reported to credit bureaus, potentially causing significant damage to the borrower's credit score. Repeated late payments can accelerate the path to default.
Example
A homeowner with a $2,000 monthly mortgage payment misses the due date and falls outside the 15-day grace period. The servicer charges a 4% late fee of $80. If the payment remains unpaid past 30 days, the delinquency is reported to credit bureaus, affecting the borrower's credit score and potentially increasing the cost of future credit.