A penalty fee is a charge imposed on individuals or businesses for failing to meet specific obligations, such as late payments or contract violations. This fee serves as a financial deterrent, encouraging timely compliance with agreements or regulations. Common examples of penalty fees include those associated with credit card late payments, bank overdrafts, and rental agreements. These fees can vary in amount and are typically outlined in the terms of service or contracts, ensuring that all parties are aware of the potential consequences of non-compliance.