A dishonored payment fee is a charge issued when a payment bounces due to insufficient funds in your bank account or when your account is closed. If the wrong payment information is accidentally used, that may also prompt a dishonored payment fee.
Dishonored payment fees are also called returned payment fees. You can find information on this type of fee in your finance contract. This type of fee is issued by banks, credit unions, landlords, cell phone companies, and many other businesses.
Financial institutions use various fees to make money and urge borrowers to pay on time. Most financial products will have fees associated with them, whether they are bank loans, or online installment loans.
When a payment bounces, the creditor is not paid on time and must wait for the individual to make a payment or submit the correct financial details. A late charge may also be issued in addition to the dishonored payment fee, depending on the financial institution.
The cost of a dishonored payment fee varies per lender. The cost typically ranges from $25 to $40 for the first bounced payment. If more than one payment bounces, then any additional bounced payments could either be the exact cost as the first dishonored payment fee or more.
Depending on the recipient of the bounced payment, you may be fined two dishonored payment fees. For example, if your rent payment bounces, you may be fined by your landlord and your bank. Your bank or credit union may charge a non sufficient funds (NSF) fee for a returned payment. The cost of an NSF fee ranges from $10 to $40, though the average is $30.
Having a payment bounce will result in a dishonored fee, but could it lower your credit score? Bounced payments do not affect a credit score, but late payments do—severely. Acting quickly to pay a scheduled bill as soon as you are notified of a bounced payment may help you avoid a lowered credit score and a possible late charge.
If your credit score ever dips, don’t panic. Financial options are always available, and working to raise your credit score by 100 points in a single month is not an impossible feat.
Multiple dishonored payment fees may increase your interest rates for loans. An unstable payment history may not make you ineligible for financing. Still, your interest rates will likely be higher to offset the lending risk.
The best way to prevent paying a dishonored payment fee is to keep a close eye on your finances and set up an action plan. Learn how to better manage your finances and avoid paying a dishonored payment fee below.
If you know you won’t have enough money in the bank by the payment due date, talk to your creditor as soon as possible. An extension may be possible, especially if you haven’t missed previous payments. This would allow you to avoid the dishonored payment fee and maintain your payment history.
If an extension is not possible, consider simply paying a late charge. If insufficient funds are in a bank account and a scheduled payment bounces, you may have to pay both the creditor and the bank. Having to pay two dishonored payment fees may only disrupt your finances further. One late charge may be a better financial decision. If you have no previous late payments, you may even be able to have the first waived.
Some types of income may put a person at risk for dishonored payment fees. Self-employed individuals may not earn the same amount every month and thus may run the risk of a bounced payment. One way to avoid a dishonored payment fee is to cancel automatic payments. Manually paying bills through your online accounts may help you better track spending and stay mindful of how much money you have in the bank.
Establishing a money management plan could help ensure you have money in your checking account for essential bills. Learn more about how much you should have in your checking account. An easy budgeting rule to follow is the 50/30/20 rule, which can be easily adjusted to fit any lifestyle.
This budgeting method involves allocating your monthly income to three categorized expenses every month. Take a look:
You can alter the 50/30/20 budgeting method if your essential expenses cost more than 50% of your income. If you want more pocket money, the savings budget could be lowered to 10%. Learning how to organize your finances means being mindful of how much money you are spending and finding new ways to save on expenses.
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