It helps to pay all your bills on time, but in cases where money is tight, sometimes bills need to get put off for a few extra weeks until finances get caught up. So of all your bills, why is paying rent on time the most important? There are always numerous implications to paying rent late, and some of them are fairly serious. Others could be incredibly damaging, so before deciding to skip your next rent payment, make sure you understand the repercussions.
Almost all leases require late fees when rent is paid past the grace period; usually anywhere between 2 to 5 days. If your rent is late, the first negative effect is the late fee. Some states allow late fees to be up to 20%, so if you have a $1500 monthly rent, just paying late could cost you an extra $150 in that month. This is usually a much higher fee than you’d pay for making your credit card or car loan payment late, so pick your poison wisely.
Recurring Late Fees
Many leases also require that, when applying a payment, the “oldest charge is paid first”. This means that if you paid late last month, but failed to include the additional late fee, when you pay this month, the first deduction from your payment will be to cover the last months’ late fee. So if you owed $150 for last month and the oldest charge is paid first, now you’re going to also have another late fee the second month too. I’ve seen tenants who’ve failed to include their late rent payment for many months, resulting in a recurring late fee for each and every month until the payment is brought current. One late fee multiplied over 6 or more months can really add up; albeit unnecessarily. At the end of the tenancy, when you may be expecting to get your full security deposit refunded back, you might be surprised that most or all of it is eaten up by unpaid late fees. Few states make late fees illegal, so if you don’t pay them, there is little to no recourse for you to avoid them.
Bad Rental Reference
When you move from one rental to the next, most landlords, and nearly all property management companies check your rental payment history. If you’ve had more than two late fees, that could be interpreted as derogatory by your new landlord or property manager. Each person and/or company may have their own preferences, but in any case, late rent payments never help your chances of being approved and almost always hurt.
This is possibly the worst thing that can happen as a result of late rent payments. Some policies I’ve seen require that when the tenant owes at least ½ of one months’ rent, eviction is recommended. This is where those compounding unpaid late fees can get you evicted. So for example, if your rent is $1000/month and you have a $100 late rent fee and do not pay the late fee the first month, the second month you technically owe $1100.00. If you don’t pay the full amount due a second time, the next month you’re going to owe $1200.00, and so on and so on. So following many companies typical policies, it might only take 6 months of failing to make one late rent payment for it to end up getting you evicted from the property. An eviction is one of the worst things that can happen to a tenant. It can be stressful and downright humiliating; especially if you go all the way to court, lose there, and end up having to be physically removed from the property by the Sheriff. I’ve seen it happen several times where the tenant is still residing in the property when it comes time for the Sheriff to enforce the eviction and perform the lockout. When this happens, the tenant in occupancy must literally vacate the premises on the spot, and if they have any furniture or belongings in the house, they are forced to immediately remove them and put them on the front lawn until such time that they can have them taken away. I hate to see this happen, but honestly, when a tenant pushes it to the bitter end, I find a small amount of pleasure in seeing them forced out of the property and having to stack their furniture on the front lawn. It may sound harsh, but I assure you, they had plenty of warning.
Judgments on Credit Reports
When a landlord succeeds in evicting a tenant, usually there is an order issued for repayment of unpaid rents. This is frequently referred to as a “money judgment”. When anyone has a court ordered money judgment entered against them in court, it automatically goes on their credit report. Money judgments can not be removed by “credit repair” agencies and the like, and will remain on a person’s credit report for up to ten years. Even worse, if the money judgment is never paid back, the judgment creditor has the right to renew the judgment for successive ten-year periods when the first ten year period expires. So you can’t count on the judgment dropping off the report after a certain period of time. If you have a landlord or property manager who wants to make sure you pay the debt, they can technically renew the judgment every ten years… forever.
Problems Buying a Home
If you are unfortunate enough to have a money judgment entered against you, it will show up on your credit report. This will impact your ability to obtain credit of any kind, particularly if you ever try to buy a home. As an experienced REALTOR, I’ve seen it happen time and time again where a person goes to buy a home, their offer gets accepted, both parties open escrow, and it gets almost all the way to closing before the loan underwriter takes one last (and very close) look at your credit report and finds the money judgment. I’ve seen plenty of real estate deals fall apart in situations like this; or alternatively, the buyer unexpectedly (and quickly) has to cough up several thousands of dollars to pay the debt before the lender will issue final loan docs and close the loan.
Communication and Keeping Promises
So if you’re planning on making a late rent payment, the first thing to do is to contact your Property Manager and explain the situation. This doesn’t guarantee that every landlord or manager will work with you, but your odds of getting the situation worked out are better if you communicate than if you don’t. Lastly, if you do come to an agreement to pay your rent late, keep your word. Your rental reference won’t be as badly damaged, you’ll probably get a reasonable extension on your payment, and if you keep your word, that’s going to portray you as a more trustworthy renter. It’s the renters who (1) don’t communicate and (2) don’t keep their word who get themselves into trouble.
If you have any questions about paying your rent late, consult with your landlord or trusted Property Manager well ahead of time. Read your lease first and make sure you know the penalties for paying late. And above all else, if you do get favor from the landlord or manager and they let you pay late, do the honorable thing and keep your word.