Impact Of Late Payments On Credit Card Interest Rates

You will typically be required to make a monthly deposit on your credit card balance at the end of each billing cycle. It is strongly advised that you pay off your full balance every month to avoid paying interest that you make these payments on time. Thus, a late or missed payment can financially affect you in three different ways and they are as follows:

●       You might receive late payment fees

●       You might have to deal with your credit card’s interest rate is increased to the penalty rate.

●       Your credit score may be impacted by your late payments, which will likely be recorded in your credit history.

Fees for late payment

When you pay your monthly statement late, the majority of credit card agreements impose specific fees. Depending on the size of your balance, the charge will usually be between Rs. 500 and Rs. 1000. This can represent a sizable portion of your balance for lower monthly balances under a few hundred rupees. Your financial burden will be equal to a year's worth of interest on that balance if you pay just one late payment fee.

What are your alternatives?

If this is your first missed payment, you might want to get in touch with the business to see if they will postpone the late fee. Although there is no assurance, card issuers occasionally have fee flexibility for clients who have historically maintained a generally good standing.

They might cooperate with you to have this charge dropped.

From Penalty APR, Higher Interest Rates

Credit card companies are typically not allowed to formally raise the interest rate on your credit card without 45 days' notice, and they can only do so after the first year.

(Note: If your credit card has a variable interest rate, the actual rate could increase if the prime rate changes because the APR you offered is the prime rate plus a small amount.)

If you end up paying a credit card bill more than 60 days late, that is one significant exception. In this scenario, a lot of credit cards will change your APR from the one you initially chose to the penalty or default rate. The penalty APR, which most businesses estimate to be between 27 and 30%, will be significantly higher than the regular interest rate you were previously paying on your card.

Getting your original purchase back APR

The only way to stop the application of the penalty rate is to make timely payments going forward. For your interest rate to return to the initial offer, you must make on-time payments for 6 consecutive billing cycles.

Impact on your credit history and score

Even though the late fee is a one-time payment and the penalty APR is typically only applied to that one card, late payments that are more than 30 days overdue are registered on your credit report after being reported to the credit bureaus. Your payment history or more precisely, the absence of negative information on your payment history accounts for 35% of your credit score. Your credit score will be lowered if you have a history of late payments. The amount of the reduction will vary depending on several variables such as the frequency of your late payments and your previous credit score.

Conclusion

Interest rates on credit cards are significantly impacted by late payments. When a cardholder fails to make a payment on time, the credit card company may charge a late fee and hike the interest rate. This is done because the issuer wants to make up for the higher risk that late payments pose to them. Because of this, the interest rate may rise significantly, making it more costly for the cardholder to use their credit card to carry a balance and repay debt.

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