Default interest

Default interests must be paid on overdue debts arising from credit agreements.

Default interest is an annual interest expressed as a percentage, which the creditor charges if the borrower does not pay his due liabilities on time - be it principal repayment or interest. In such cases, the creditor will charge late interests at the rate specified in the credit agreement or the general terms and conditions for the overdue amount. 

The rate of late payment interest is usually higher than the normal interest. The late interest amount to be paid is calculated by taking into account a 360 (three hundred and sixty) day year and the days that have actually passed. The method of calculation is therefore the same as the transaction interest.

Payment of the charged late interest is preferred. This means that the next time the borrower pays a certain amount, the bank first deducts the late payment interests and the debts that have already expired. Deductions begin with the debt that is due the longest, until the overdue part has been credited, and the bank only uses the remaining amount to repay the currently due installment. 

In case of late payment, in addition to charging late interest, the creditor is also entitled to take additional steps specified in the legislation and the general terms and conditions of the contract. The latter may even be the spot termination of the credit agreement. 

An important point is that banks have a well-established and regulated automatic mechanism of effect the moment a credit agreement falls into late payment. For this reason, if there is even the possibility of late payment, it is worth notifying the bank as soon as possible and in advance, so that a solution can be found to avoid the delay.

Late payment also worsens the company's future borrowing chances.