The Impact of Default Interest on Your Total Debt
💡 Quick Tip
A delay of just a few days can be very expensive. Default interests are penalties for paying late that are relentlessly added to your original debt. Learn how they are calculated, the legal limits banks must respect, and how to stop this snowball before it's too late.
What is Default Interest?
Unlike ordinary interest, default interest is a penalty. It is automatically activated the day after the payment deadline. Its goal is to compensate the creditor for the delay and pressure you to pay as soon as possible. It is calculated on the unpaid principal for each day of delay.
📊 Practical Example
You owe a bill of $1,000 and your contract stipulates a 20% annual default interest. If you are 90 days late, the calculation would be: ($1,000 x 0.20 x 90) / 365 = $49.31. Adding the "debt claim fee" (usually $35), you now owe $1,084.31. For being three months late, you owe an extra $84.31. Time is literally money when it comes to non-payments.
