Late payment

Bank customers go into arrears when they do not pay the instalment of the loan on the stipulated date.

In this case, credit institutions may require customers to pay default interest and other charges. These charges are limited to a single fee for the recovery of outstanding amounts and expenses incurred after going into arrears, provided that they are duly documented.

 

Compensatory interest and default interest

As a rule, loans are repaid by bank customers through the payment of constant monthly instalments.

These instalments are composed of part principal and part interest. The interest component paid by bank customers corresponds to the compensatory interest that the credit institution receives for making the funds available. The compensatory interest rate is thus the annual nominal interest rate of the loan.

In the event of arrears, credit institutions may charge default interest. This default interest results from the application of a maximum annual surcharge of 3%, which is added to the interest rate.

Default interest rate = Compensatory interest rate + 3%

Default interest is calculated on a daily basis on the amount of the instalment due, for as long as non-compliane remains.

Default interest = Amount of instalment due x (default interest /360) x No. of days in overdue

This means that, in a situation of default, credit institutions can capitalise – i.e. convert into capital – the compensatory interest of the instalment due by applying new interest thereon.

This capitalisation of compensatory interest that includes overdue and unpaid instalments can only occur once in each instalment.

The possibility of capitalisation must be agreed in writing between the credit institution and the bank customer. If there is a written agreement, the credit institution may capitalise without having to notify the bank customer.

The capitalisation of default interest is not allowed, except for the restructuring or consolidation of loans.

 

Other charges applicable in the event of default

Credit institutions are generally prohibited from charging fees based on the default of bank customers.

However, credit institutions may require payment of a fee for the recovery of amounts owed.

The debt recovery fee may be charged only once, for each instalment due, and it may not exceed 4% of the instalment amount, with a minimum value of €12,00 and a maximum value of €150,00.

If the instalment exceeds €50,000.00, the fee may not be above 0.5% of its amount.

Credit institutions may also require the bank customer to pay the expenses owned to third parties, on behalf of the customer, after the entry he/she entered into arrears, upon presentation of supporting documents.

Example

The bank customer failed to pay on the contractual date the monthly instalment in the amount of €350,00, entering into arrears. In addition to the instalment due, the credit institution may require a default interest corresponding to the nominal annual percentage rate (4%) plus a surcharge of 3%.

If the bank customer pays the amount overdue in 20 days, he/ she must pay the monthly instalment amount plus the corresponding default interest. Additionally, the credit institution may charge a fee corresponding to 4% of the instalment amount.

Total amount payable = monthly instalment + default interest (20 days) + fee

Total amount payable = €350 + (€350 x 0.07/360 x 20) + (€350 x 0.04)

= €350 + €1.36€ + €14 = €365.36