To calculate late payment penalties for installment plans, determine the penalty structure first. Most lenders use either a fixed fee (e.g., $15–$35) or a percentage-based charge (e.g., 1.5–5% of the overdue amount). For percentage-based penalties, multiply the overdue installment by the penalty rate. If penalties compound daily, apply the daily rate to the outstanding balance. Always verify the terms in the loan agreement.

The prevalence of fixed versus percentage-based penalties varies by lender and loan type. According to a 2022 Consumer Financial Protection Bureau (CFPB) report, 60% of installment loans impose fixed late fees averaging $35, while 30% use percentage-based penalties. For example, a $500 overdue installment with a 3% penalty incurs a $15 fee. Compound penalties are less common but can escalate costs significantly. A 2021 Federal Reserve study found that daily compounding at 1% increases the total penalty by 37% over 30 days compared to simple interest. State regulations also influence penalties; 15 states cap late fees at 5% of the overdue amount. These practices balance lender risk and consumer affordability, ensuring timely payments without excessive financial burden.