What is a default charge?

A typical clause reads: "If a monthly payment is not received by the due date, a default charge of £12 will be applied to your account, and interest will continue to accrue." In plain English: pay a day late and you'll be billed £12 on top of what you already owe — plus interest on the whole balance.

On top of the charge itself, a missed payment is usually recorded on your credit file, which can make borrowing more expensive for years afterwards.

A charge that reflects the lender's genuine cost of chasing a missed payment is allowed. What's not allowed is a charge that profits from your mistake.

• Normal territory. For credit cards and loans, charges around £5–£15 for a missed payment are typical and generally accepted.
• Potentially excessive. Charges of £25, £35 or more — especially stacked charges (a late fee plus a default fee plus an administration fee for the same missed payment) — can be challenged as penalty charges.
• Stacking. Check whether the contract allows multiple fees for one missed payment. One event, one charge is the fair rule of thumb.
• Compounding. If unpaid charges themselves attract interest, a single missed payment can snowball. Look for wording like "charges will bear interest at the rate applicable to your account".

Ask the provider for a breakdown of what the charge covers. If it clearly exceeds their actual cost, write and ask for it to be refunded — providers often refund a first charge as goodwill, especially if you usually pay on time. If they refuse, the Financial Ombudsman Service can review charges on regulated credit agreements for free. And if you spot eye-watering default charges in a contract before you sign, that's a signal to negotiate — or walk away.

A default charge is a fee for missing a payment. Modest charges that cover the lender's cost are legal; stacked, outsized or interest-bearing charges may be penalties you can challenge. Read the charges section before signing — and if it's hard to follow, run it through JargonShield first.