A default interest is an additional expense that may be imposed on the debtor, which he or she must pay if a sum due has not been paid on time. Therefore, it can prove expensive if you do not pay your debt on time. It is not just in relation to loans, as every creditor has the right to set a mortgage interest on top of their bill.
However, it is very much something that is used if you have borrowed money or otherwise taken out a credit with a bank or a lender online. If your debt is not paid on time, the creditor can charge a fixed schematic interest on top of the amount you owe. However, it is only in the event that you do not pay your debt on time.
Can be considered as a form of compensation
You can therefore best describe a default interest rate as a form of compensation that you must pay to your creditor as a form of penalty if you are unable or do not remember to pay your debt on time. It is a concept most people are familiar with, but not everyone is aware that it is known by the name of interest on interest.
Therefore, it is a legal term that describes the limit on how much a creditor can attribute to their bill if a debtor has failed to pay his debt on time. The creditor is not free from the amount of interest they must impose on their debtor, as there are some clear rules they are obliged to comply with in this regard.
How are interest rates calculated?
As has also been stated in the past, there are some clear rules that you must obey if you as a creditor intend to impose interest on a bill to a debtor. Therefore, the interest rate must also be calculated according to a number of fixed provisions stated in the Interest Act. These you have a duty to always make use of.
Therefore, a bank or other type of lender cannot decide for themselves how high an interest rate they will impose on a debtor’s account. They must calculate their interest rates according to the official rules and laws. If they do not, then there is no valid interest rate, which is why you as a debtor actually have the opportunity to object.
At the time of writing, a default interest rate consists of the annual rate prescribed by Danmarks Nationalbank plus a fixed surcharge of 8 percentage points. From 2014, there has been a fixed rate from Danmarks Nationalbank, which is at 0.20%. This means that the allowable default interest rate you can assign to a debtor is 8.20%.
When can a late interest rate be charged?
You must charge an interest rate on an outstanding amount if it has not been paid on time. Therefore, there is no set amount of time that has elapsed from the original due date before the creditor is allowed to charge a default interest on the debtor. This can be done from the first reminder that is sent to the debtor.
When calculating a default interest rate, the usual practice in Denmark is based on. It is based on the fact that one year consists of 360 days of interest. This also means that a month consists of 30 interest days. In addition, you should be aware that interest rates on interest rates are not calculated as other interest rates.
The interest rate changes when Danmarks Nationalbank either raises or lowers the interest rate on loans. However, there may also be a change in the interest rate if, per law is adopted a new interest rate. Therefore, it is also very rare for changes in the interest rate – both from the National Bank and the legislation.