What is a late fee?

A late fee is a monetary charge imposed when a payment is not made by the due date. This fee serves as a penalty for failing to meet the agreed-upon payment schedule, encouraging individuals and businesses to pay bills on time. Late fees are commonly applied in various contexts, such as credit card payments, rent, utilities, and loan repayments. By imposing a late fee, the creditor essentially incentivizes timely payments, which helps maintain cash flow and reduces the risk of defaults.

In this context, the other options are misinterpretations of what a late fee represents. A bonus for early payment and a discount for prompt payments refer to rewards for timely action rather than penalties for being late. A fee for account maintenance relates to costs associated with managing an account, which is not directly tied to payment deadlines or their consequences.