What is the penalty called that a borrower must pay for making a payment after its due date?

The term for the penalty imposed on a borrower who makes a payment after its due date is "Late Charge." This fee is typically a percentage of the payment amount and is applied to encourage timely payments and compensate the lender for the inconvenience and potential risk associated with late payments. Lenders establish these charges in the loan agreement to maintain cash flow and manage the financial risks associated with borrowers who fail to adhere to payment schedules.

Understanding the specifics of late charges is crucial for loan officers, as it influences borrower behavior and overall loan performance. This knowledge is also important for advising clients on the consequences of late payments, which can impact both the borrower's credit score and their financial standing.