Why a Partial Payment is the Same As a Late Payment

                                                   

Since the recession of 2008 many Americans continue to struggle with paying their bills and basic necessities. Many who are in debt cannot afford to pay the minimum monthly payment for their bills. Some opt to send in a partial payment; unfortunately this is frowned upon by most companies. Companies can refuse partial payments and the decision is solely up to the company to accept a partial payment.

If a partial payment is accepted for a company that provides you service such as a utility company or phone company your service may be temporarily interrupted until any past due payments are received. The company may also charge a restoration or reconnection fee to resume service. You may be able to negotiate sending a partial payment with your credit card company but don’t send a payment without talking to them first.  A partial payment is treated as a late payment and can be reported on your credit report. Some companies will allow payments by phone but charge a service fee and may charge a late fee.

If you have a charge card such as American Express and Diner’s Club that requires you to pay the balance in full by the billing due date usually the end of the month, you will charged a late fee on outstanding balances.  American Express provides eligible members with flexible payment options which allow the member to pay certain transactions over a period of time.

If you have a credit card such as Visa or MasterCard that requires you to pay the minimum payment by the billing due date you will be penalized for sending less than the minimum payment amount. You may be charged a late fee or your interest rate may increase unless you contact the creditor in advance to make payment arrangements.

For most loans such as mortgages, auto and student loans partial payments are not accepted unless stated in the terms of the loan agreement.  For mortgage loans, loan servicers must review a consumer’s legal obligation with the creditor to determine if a partial payment can be accepted since payments cover principal, interest and escrow – a partial payment would not cover all these costs.  Late fees can only be assessed on the unpaid previously owed amount and cannot be assessed on the regular scheduled payment.

Some lenders hold partial payments until the full amount is received and then apply the amount to the customer’s account. If you lender accepts your partial payment and puts it on hold ask the lender to apply the amount to the oldest missed payment to prevent a late fee charge.

Certain landlords may accept a partial payment but you should discuss the terms of the payment arrangements in advance and submit the payment along with a letter stating the agreement.  Some cable providers will charge a late fee for the remaining balance due when a partial payment is received and may interrupt service.

The IRS accepts partial payment for taxes owed but late payment penalties plus interest are charged.

If you send a partial payment for an insurance policy your policy may not remain active if the balance is not received by the payment due date.  However, some companies allow customers to send partial payments.  For example, if you pay $400 quarterly, your statement may require you to send a minimum payment of $137 to keep your policy active, however, you must pay the remaining balance by the due date specified on your statement. If a partial payment if sent any claims filed may not be processed.

A collection agency can refuse a partial payment.  If you are unable to pay the amount owed it is best to setup payment arrangements with a collection agency prior to sending a payment. However, if you are being threatened with legal action it may be best to submit a partial payment as a measure of good faith.  Ensure you remain in constant contact with the collection agency by sending a letter each month until you save the lump sum reminding them that you don’t have the full amount but once you get some extra money you will promptly send a payment. If the collection agency doesn’t accept your partial payment save up a lump sum and use that to negotiate a settlement amount of 50-70% of the original amount owed.   If the collection agency is unwilling to work with you contact the original creditor and ask them to take the account back and setup payment arrangements with them instead.

If you owe an outstanding balance to a utility company they may require you to send a deposit or partial payment before your service is restored.  If the company is a gas or electric company they must give you 10 days advance written notice by mail that your service will be disconnected.  If the company is a water, sewer or telephone company they must give you 5 days advance notice and the notice must state the shut-off date and the reason for the shut-off. The notice should also provide a contact number to call to inquire about the shut-off. The shut-off notice should be sent as a separate notice from your regular bill. Here are 4 steps to follow if you decide to send a partial payment:

1. Payment. Determine how much you can pay when sending a partial payment. Be sure to get the agreement in writing and stick to the terms.
2. Negotiate. If you want to send a partial payment for your credit card account, contact the company and ask for an interest rate reduction or reduction in your minimum monthly payment for a short period of time. 
3. Ask. Ask the credit card company if it has a hardship program. This plan reduces the total amount due and may freeze the interest rate allowing you to pay less for a specified period of time without worrying about incurring late fees and penalties.
4. Records. Keep records of all correspondence sent and verbal discussion for future reference. Mail all correspondence using certified mail.