Which clause encourages timely payments and compensates the lender for delays?

• A. Late payment clause
• B. Acceleration clause
• C. Escalation clause
• D. Usury

Answer: (A)

A late payment clause is specifically meant to address payments that arrive after the due date by imposing penalties and added costs. By charging a late fee or higher interest on overdue amounts, it provides a financial incentive to pay on time, while also compensating the lender for the extra administrative work and the risk associated with delays. This combination directly targets timely payments and the consequences of delays.

In contrast, an acceleration clause is about what happens when a borrower defaults, often demanding the full remaining balance immediately rather than addressing late payments on a schedule. An escalation clause usually relates to increasing costs, such as rent or prices, over time rather than specifically punishing late payments. Usury refers to charging interest that is illegally high, not a mechanism that directly ensures timely payment or compensates for delays.