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Know your rights when making payments in Europe.
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Bank customers go into default when they do not pay the instalment of the loan on the stipulated date.
In this case, the credit institution may require bank customer 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 default, provided that they are duly documented.
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 a situation of default by the bank customer, 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 day by day on the amount of the instalment due and not paid, for the duration of the default of the bank customer.
Default interest = Instalment in arrears x (default interest rate/360) x No. days in default
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.
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 fee for the recovery of amounts owed may be charged only once for each instalment due and not paid and cannot exceed 4% of the instalment amount, with a minimum value of EUR 12 and a maximum value of EUR 150.
If the unpaid instalment exceeds EUR 50,000, the fee to be charged may not exceed 0.5% of the instalment.
Credit institutions may also require the bank customer to pay the expenses they incurred with third parties, on behalf of the customer, after the entry into default, upon presentation of documentary evidence.
A bank customer did not pay on the scheduled date the monthly instalment in the amount of EUR 350, going into default. In addition to the instalment amount in default, the credit institution may require default interest at the annual nominal rate of the loan (4%) plus the 3% surcharge.
If the bank customer regularises the situation after 20 days, he or she must pay the amount of the monthly instalment in default plus default interest corresponding to that period of time. In addition, the credit institution may charge a fee corresponding to 4% of the instalment.
Total amount to be paid = monthly instalment + default interest (20 days) + fee
Total amount to be paid = €350 + (€350 x 0.07/360 x 20) + (€350 x 0.04)
= €350 + €1.36€ + €14 = €365.36
Decree-Law No. 58/2013 (only in Portuguese)