Paying a credit card late by just one day can be very costly. Consumers who are carrying a balance must be vigilant about changing due dates, which could snare them into a late payment. Under many credit card agreements, the late payment will cause the loss of a low fixed interest rate to be replaced with a much higher default interest rate. Most people should avoid a late payment on a card with a balance at all costs.
Penalty Interest Rate
When a payment is not received by the due date, many banks automatically charge a late fee which is usually around $35. In addition, some credit card issuers also automatically change the interest rate to a default or penalty rate which is around 29% APR. Some banks may give the borrower one late payment per rolling 12 month period before imposing the penalty rate. The exact terms for the imposition of a penalty rate depend on the borrower's credit card agreement.
Using an actual example of a $10,000 balance at 9.9% APR, the monthly finance charge is usually around $82.50. If a payment arrives one day after the due date, the rate may increase to a 28.9% APR which represents a monthly finance charge of $241. The cost of the $35 late fee is nothing in comparison to just one month's increased finance charge. In most cases, the only way to avoid the interest rate increase is to transfer the balance somewhere else, which itself is difficult in today's credit climate.
