When you miss out on paying a bill, monthly loan instalment or any amount you owe before the deadline, it is called an overdue payment. Though this may not seem like a big deal initially, it can certainly affect you in the long run. It is because these overdue payments, which you have not been able to clear on time, may lead to extra charges and affect your credit score. Moreover, if you have overdue payments on your accounts, you may also experience difficulty in getting loans in the future.
So, let’s learn everything about overdue payments and how they can affect your finances.
What is an Overdue Payment?
As the name suggests, an overdue payment simply refers to the payment that you have failed to make on time. This payment could be your credit card bill, loan EMI (Equated Monthly Instalment), utility bill, any fee that you were supposed to pay, etc. When you do not pay on time, this payment becomes overdue, thereby, leading to penalties or interest charges.
Difference Between Outstanding Payment and Amount Overdue
More often than not, people usually confuse the outstanding payment and the amount overdue. However, while they may sound similar, there are differences between them. So, let’s understand what these terms mean:
- Outstanding Payment: This is the total amount of money you owe and it includes all pending payments.
- Amount Overdue: On the other hand, this amount overdue is the specific part of the total payment that you did not pay by the due date.
Didn’t get it? Let’s understand it with an example:
Suppose you have taken out a loan of ₹1,20,000. Now, you agree to pay ₹10,000 as a monthly instalment. This ₹10,000 would be the amount overdue, while the total outstanding payment remains ₹1,20,000.
Interest on Overdue Payments
There is interest involved in overdue payments and that’s why it is important for you to understand the fundamentals of overdue payments. This way you would be able to manage your finances and keep a check on your expenses.
So, when payments are overdue, the lenders would charge extra money as interest on overdue payments. This interest would then add up to the total amount you owe. Now, the longer you delay payments, the more interest you will need to pay. Hence, make sure you always clear your debt on time.
Why Do Payments Become Overdue?
There could be numerous reasons for not making the payment on time. Some of them are:
- You may not have enough money to pay on time due to unexpected expenses or job loss.
- You might forget the due date of your payment.
- Sometimes overspending is the reason. When you spend more than you can afford, it might leave you without enough money to pay bills.
- Misunderstanding payment terms or dates can also lead to delays in payments.
Effects of Overdue Payments
When you do not pay on time, it can certainly lead to numerous problems. Here we talk about the major consequences of overdue payments:
1. Late Fees: Yes, most lenders charge a penalty when your payment is late. This would not only increase the total outstanding payment but also make it harder for you to catch up.
2. Higher Interest Costs: Always keep in mind that there is an interest segment involved. So, if you delay payments for a long time, interest on overdue payments can build up and create problems for you.
3. Damage to Credit Score: One of the biggest losses you may face due to overdue payments! When payments are overdue, lenders would report this to credit bureaus and eventually your credit score would go down.
4. Increase In Debt: If you let the overdue payments pile up over time, your debt will grow larger, thereby, creating financial stress.
5. Legal Actions: If you ignore overdue payments for a long time, lenders may take legal action against you.
6. Impact on Future Loans: If you regularly have overdue payments, lenders may consider you a high-risk borrower. This would result in denying your loan applications or charging higher interest rates in the future.
How to Avoid Overdue Payments
Here’s how you can avoid overdue payments:
- Set reminders by using mobile apps or calendars to remind you of due dates. This would help you stay on track.
- You can also automate your payments. Just set up automatic payments for bills or EMIs so that the amount gets deducted from your bank account on the due date.
- Budgeting can also help you a lot. You can make a monthly budget to plan your expenses and make sure you have enough money to cover your payments.
- Inform your lender in advance in case you know you will not be able to make payment on time. This way you may get the extra time to make payments.
- You can also make a list of your outstanding payments and check them regularly to avoid missing any due dates.
Benefits of Clearing Overdue Payments
The top 3 benefits of clearing your overdue payments are:
- No late fees or extra interest.
- Improvement in credit score.
- No financial stress.
Conclusion
This is what overdue payments are all about. Make sure you always check your overdue payments to avoid penalties, interest and credit score damage.
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