Can a Collection Agency Charge Interest?

If your debt was sold to a collections agency, you may be wondering whether a collection agency can charge you interest on your outstanding debt? We will answer this question in much detail below. Oftentimes, if you have outstanding credit card debt that was charged off or your checking account had a negative balance, the outstanding amount may have been sold off to a collection agency. We often get asked whether a collection agency can charge you interest? Read below to find the answer to this question.

Can a Collection Agency Charge You Interest?

Yes, a collection agency can charge you interest on the amount that you owe them. However, collection agencies can only charge you interest according to the terms of the original agreement between you and your lender. For example, if you defaulted on a loan, a collection agency can only charge you the interest that your lender would have charged you. They cannot charge you more interest than was originally agreed upon by you and your lender. We know this isn’t the answer you were looking for, but the reality is that they can charge you interest. Furthermore, a collection agency cannot charge you a late fee unless a late fee was included in your original contract.

That said, if there was no agreement to charge you interest between you and your lender, a collection agency cannot charge you interest on the amount you owe.

Collection agencies are prohibited from charging you interest unless you agreed to be charged interest on the debt because debt collectors are prohibited from punishing you for failing to pay a debt. As such, a collection agency cannot double or triple the amount of money that you owe them because they felt like it.

However, if your original agreement with your lender states that they can charge you interest, then a collection agency can only charge you that amount of interest. This means that they cannot increase the amount of interest on the amount of money that you owe.

If you believe that the amount of money that a collection agency or debt collection agency is charging you is too high, contact them and ask them to clarify the amount of money they’re charging you. If they are charging you more interest than originally agreed upon between you and your lender, bring it to their attention and see how they respond. If the collection agency or debt collector is engaging in unlawful practices, you should contact your State’s Attorney General and ask them what you should do to handle the situation.

How Much Interest Can a Collection Agency Charge You?

A collection agency can only charge you as much interest as was originally agreed upon between you or your lender. For example, if you took out a loan to buy a car, and your contract stipulated that you can be charged a 7% interest rate, the collection agency can only charge you a 7% interest rate and nothing more. This is so because the Fair Debt Collection Practices Act (FDCPA) stipulates that only this amount of interest can be charged to consumers. These rules also apply to late fees, penalties, and other fees. To be able to charge you any of these fees, they must be in your original agreement. If they are not in the agreement, you cannot be charged these fees.

How Long Can a Collection Agency Charge You Interest and Fees?

A collection agency can charge you interest and fees for as long as your contract allows the original lender to do so, so long as they are acting within the statute of limitations. For most debts, the statute of limitations (SOL) is 10 years. Unfortunately for you, creditors and lenders can attempt to collect the debt and charge you fees during that time frame. Unfortunately for consumers, this means that debt collectors and collection agencies can significantly increase the amount of money that you owe them.

What Happens to Your Credit After A Collection Account is Added to Your Credit Report?

When your debt is sold to a collection agency, collection agencies will typically add a collection account to your credit report. Collection accounts can significantly lower your credit score, and the higher your starting credit score, the bigger the drop will be. For example, if your credit has already sustained damage, your credit score will not drop as much as would a person who has a flawless credit history. That said, once a collection account is added to your credit report, it will have a significant negative impact on your credit score.

Unfortunately, paying a collections account on your credit report will not improve your credit score. A paid and unpaid collection account will affect your credit score just as much. The only way to remove the impact of a collection account on your credit report is to have it removed, and this is not an easy task to accomplish. You may want to try negotiating the removal of the collection account from your credit report in exchange for paying the account. This strategy might work with some collection agencies.

What Types of Debt Can Collection Agencies Come After You For?

Collection agencies can come after you for any type of debt, and types of debt include the following:

  1. Unpaid medical bills
  2. Defaulting on car loan or lease
  3. Unpaid credit card bills
  4. Student loan debt
  5. Utility bills
  6. Bank overdraft charges
  7. Personal Loans

That said, the most common debts that consumers default are medical bill debt, auto loans, and credit card debt.

Bottom Line

The bottom line is that debt collection agencies do not have to charge you interest and fees to make money because they likely purchase your debt for pennies on the dollar. If you’ve ever dealt with a debt collection agency is that they will make you several offers after your debt is sent to them. This is so because if they can convince you to pay a portion of the debt, they would have made money. So, if you want to stop a collection agency from attempting to collect a debt from you, try negotiating with them and see if they will budge for a much lower amount than what you originally owed. Chances are that they will be willing to settle the debt with you for a much lower amount than what they’re claiming you owe them. What we are trying to say is that you should take any additional charges and interest fees with a grain of salt, and try to negotiate a lower amount than what you originally owed because chances are they are still making money by collecting only the original debt from you.