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The late fee language is not likely where the interest they're charging you is coming from. All "12 month no interest" loans I've ever seen have a provision in the agreement that says if the entire balance is not paid in full by the end of the interest-free period, all interest that has accrued (been deferred) on the account during the 12 months will be assessed to the account. You need to see whether or not the agreement has such a provision.
If not, you can fight it. If there is such a provision, however, you're going to be responsible for this accrued interest.
If you missed the deadline to pay by 1 day, the lender has a contractual right to charge the interest. I agree with you that the lender could give you some grace days or give you a break, but the contract is the contract, and there's no law that is going to require the lender to waive this interest under any circumstance. No court is going to disturb the provisions of the contract.
However, if there is some document you didn't sign that says you agree to pay this accrued/deferred interest, you may have a legal claim to challenge this. If nothing else, it may be a good bargaining chip to settle this debt for an amount less than what they've assessed to you.