Late fees and late interest: how to work out an overdue bill
When a bill is paid after its due date, the amount usually grows in up to three ways: a late fee, charged once; late interest, which grows with each day overdue; and, in some contracts, an inflation adjustment.
Step by step
1. Count the days between the due date and the payment date. 2. If there is an inflation adjustment, apply the cumulative index change. 3. Apply the late fee. 4. Work out the interest: at 1.5% a month charged per day, each day late costs 1.5% ÷ 30 of the amount.
| $2,000 invoice, 45 days late | Amount |
|---|---|
| Late fee of 5% | $100.00 |
| Interest of 1.5%/month × 45 ÷ 30 | $45.00 |
| Total to pay | $2,145.00 |
What sets the rates
Late fees and late interest come mainly from the contract or the invoice terms (for example, “1.5% per month on overdue balances”). State laws can cap late fees and interest for some kinds of debt, such as consumer loans, rent or medical bills, and government payments follow their own statutory rates. Check the terms that apply to your bill.
Why a short delay is expensive
Because the fee is charged in full on day one, a short delay costs a lot relative to its length. A 5% fee on a payment 10 days late is like paying more than 15% a month. After the fee, each extra day only adds interest, so paying soon still helps.
Be careful
If the charges look higher than the contract allows, ask the creditor for a breakdown. For large debts or collections, talk to a consumer attorney or a nonprofit credit counselor.