Default (or late) interest represent interest charges that are applied to debts that are not paid within the prescribed time frame. They are calculated using a simple interest calculation on the overdue principal, with the calculation of late fees on late fees being prohibited.
WHAT IS INTEREST REALLY?
Interest is the cost of borrowing money and compensation to the lender for giving up their own consumption and risks they take when lending their money to others. Based on their origin, interests can be divided into:
• Legal interest (usurae legales) have their basis in a legal norm that imposes, in addition to the payment of the principal, an obligation to pay interest. The most well-known example of legal interest is late fees. Late or default fees are a penalty against the debtor who is late in fulfilling their monetary obligation. The late fee rate is determined by specific laws or other regulations.
• Contractual (usurae conventionalis) are interest payments for the use of someone else’s money or other fungible items, as determined by agreement. The basis for contractual interest is usually a loan agreement. Contractual interest rates are determined by the contractual parties.
No Hidden Fees
WHEN IS LATE FEE APPLIED?
The rule is that the debtor is obligated to pay the monetary obligation within a specified timeframe, which can be determined by law or agreement. However, if the debtor does not fulfill their obligation within the specified timeframe, they are obligated, by law, to pay late fees to the lender. Late fees represent the lender’s claim due to the fact that the debtor did not fulfill their monetary obligation in a timely manner.
By its nature, late fees represent a lump-sum compensation for the damage suffered by the lender due to the debtor’s late payment, with the specific thing being that the lender is not obligated to prove the existence and amount of the damage. With respect to this, questions arise about the length of the payment timeframe, its beginning and end of duration. Court practice has adopted the stance that the debtor’s monetary obligation becomes due for payment within eight days of the date when the debtor receives the invoice, unless otherwise specified or agreed.
Public enterprises that provide public and other services to citizens determine the rules for payment maturity on their own. By the mere fact that a certain consumer has become a user of public and other services, it is assumed that a contract has been concluded with the service provider, or that the consumer has agreed to pay the price of the service within the timeframe determined by the service provider (so-called access contracts). However, for a certain consumer obligation to pay for services according to the invoice to mature, it is necessary for the consumer to receive an invoice from the service provider. Receiving the invoice and evidence of this is important because the debtor cannot owe late fees if they have not received the invoice from the service provider and if the agreed payment deadline has not passed from the date of receipt in the manner described above.
LEGAL INTEREST RATE FOR PUBLIC REVENUES
Regarding the legal interest rate for public revenues, it is regulated by the Law on Tax Procedure and Tax Administration. This law regulates the procedure for determining, collecting and controlling public revenues to which this law applies, the rights and obligations of taxpayers, the registration of taxpayers and tax offenses and violations. This law applies to all public revenues collected by the Tax Administration, unless otherwise regulated by another tax law and also applies to interest on overdue and uncollected taxes and the costs of compulsory tax collection procedures.
INTEREST RATES IN BANKING
The importance of penalty interest can be seen in banking. Banks charge, calculate, and collect penalty interest on overdue payments (principal, fees, and other debts) in accordance with regulations. It is important to note that when penalty interest starts to accrue on overdue uncollected debts, regular interest stops accruing and is calculated on the remaining debt as it becomes due. Penalty interest is calculated and charged monthly. It is calculated from the day the debt becomes due to one day before payment of interest, and the calculated penalty interest in one calculation period does not enter the basis for calculating penalty interest in subsequent periods as already mentioned. Penalty interest becomes due immediately and its collection follows calculation without prior notification to the client. Finally, penalty interest is a means of preserving the value of the creditor’s monetary claim and is calculated and collected only when the debtor does not pay the monetary debt on time. In practice, it is most commonly applied to monetary claims in bank-customer banking relationships, but also to citizens’ delays in paying for utility services.
