Late Payment Fees and your Credit
Late payment fees are a staple of auto lending as they are some other kinds of installment loans. Lenders are able to charge a fee after a certain number of days past your due date. This is usually to cover administrative costs associated with you not paying your bill on time and delaying their internal processes. The specifics of the amount charged can be seen on your original loan document or on your monthly bill. But the all-important question most people want answered is: How will this average car payment late fee affect my credit rating and my credit score? The answer is, it depends on how many days late.
Creditors report to the consumer credit bureaus (companies that like Equifax, Trans Union and Experian that collect consumer credit information) every 30 days. This means that technically, while you may be four or even seven days late on occasion, it does not really dent your credit until you are 30 days late. Once you are 30 days late, you begin to see a drop in your credit score. Being 60, 90 or even 120 days late will mar your credit history by significantly reducing your credit score. Also all derogatory items stay on your credit report for seven years, thereby impeding your chances of getting a loan or receiving good rates when you do get a loan.
Late Payment Fees Charged for Auto Loans
As stated earlier, the average car payment late fee and the exact amount you are charged really depends on your auto loan document or contract. So it is very important you read the fine print before you sign any loan document. Auto loans obtained at car dealerships have been notorious for being characterized signings that occur almost under coercion from car sales people who hover over you, urging you to append your name to the dotted line. It is always advisable to take the document home, read it carefully and if you don’t understand it, ask a professional. Only after close scrutiny should you sign a car loan document. Also car loans obtained at car dealerships are generally more expensive because the lenders pay the dealers a commission for selling you a loan and the extra cost is passed on to you.
What the loan document says about how and when late fees will be charged and how much they will be is also governed by both state and federal law so it is advisable you check with your state regulatory body. Remember also that some national banks do not fall under state law jurisdiction. On the federal level, laws like the Truth in Lending Act, the Fair Credit Reporting Act and the Fair Debt Collection Act require full disclosure all loan terms by lenders, accurate reporting of your loan activity to the consumer credit agencies and fair practices in debt collection respectively.
Finally, another factor that determines how much you actually pay in late fees is your personal credit history which in turn determines your interest rate. This is especially true for subprime borrowers with less than perfect credit for whom auto loan interest rates can be as outrageously high as 20 percent. This coupled with how much you borrow will determine your late fees if you are ever late.
Avoiding Late Fees
The best way to avoid late fees is to pay your bills on time each month. If you mail your check in time but it gets to your lender late for any reason, you will be held responsible for its lateness and may be charged a fee. To avoid this, use online banking. Most banks offer this for free with your checking account and most major lenders have arrangements with other banks that allow them to be paid electronically through online bill pay. This eliminates the possibility of your check arriving late to your lender.
If you know you will be late as a result of an unforeseen circumstance or emergency, try to make the payment within the grace period allowed for your loan. Some auto loan programs have grace periods that range from three to 10 days. Read your loan document to confirm if you have a grace period. If you are unable to make the payment within the grace period, and if you are not frequently late, you may be able to negotiate a waiver of the late fee.