What are interest rates?

What are interest rates?

October 21, 2019 Off By admin

Overdue interest is an additional expense incurred by the debtor if he does not pay his agreed claim on time. What this means is that the lender (whether it is an online loan provider or a bank) has the right to impose a fixed, schematic, fixed interest over and above the amount owed, if the debtor is unable to pay his installments on time.

What this means is that it can actually best be considered as a form of compensation that the lender can claim if the borrower does not ensure that the payment arrives in a timely manner. Therefore, default interest is – basically – a legal term that describes the limits on how much a creditor can attribute to the debtor’s payment, if it is not timely.

How are interest rates calculated?


Interest on interest must at all times be calculated according to fixed provisions. These provisions are written into the Rent Act and they must always be complied with. Therefore, a bank or other type of lender cannot decide for itself how much the interest rates should be. They must calculate it according to the official rules and laws, regardless of the size, purpose, etc. of the loan.

At the time of writing, the interest rate must be calculated on the basis of the annual reference rate issued by Danmarks Nationalbank, which is based on a fixed supplement of 8.0 percentage points. At the same time, since 2014 there has been a fixed interest rate of Danmarks Nationalbank at 0.20%, which means that the total interest rate is actually at 8.20%.

When the banks or other types of banks calculate the interest rates on their debtors, this is always done according to the rules of the Rent Act. However, you should be aware that interest rates are not included in the calculation.

What amount does interest pay?


It is not only the principal that is recognized when calculating what is to be paid in the interest rate. On the contrary, the interest rate will be charged on the basis of the principal, repayment fees, compensation fees, debt collection fees and any credit interest. However, the interest rate is not attributed to the principal, but is separately attributed so that interest rates can be avoided.

It is permissible to calculate interest rates on the credit interest rate, but not on the interest rate. Please note that when calculating interest, it is automatically assumed that all months are of 30 days duration. If the interest rate changes during the period in which interest is calculated, then the calculation will be divided according to the period in which the respective interest rate applies.

If there is a claim consisting of several claims, then the interest will have to be calculated separately. This may be, for example, in the case of both a principal and a number of subsequent costs. These may include costs such as debt collection or compensation fees.

When can interest rates be charged?


It is permissible to charge interest on an outstanding amount if it has not been paid until the due date. Calculation of this interest rate follows the usual practice in Denmark, which is based on the fact that one year consists of 360 days of interest (which is also described above). However, there is no obligation to impose a default interest rate, but most creditors do.