What is delinquent interest on a loan?

What is delinquent interest on a loan?

The delinquent interest is a percentage that is charged when you are behind in the payment of your loan or credit. These only apply once your payment deadline that you establish with the financial institution at the time of acquiring a loan expires.

Default interests are different from the simple interests that you acquire when requesting any credit. And they are calculated on the amount you had to make on the agreed date. It is very important that before applying for a loan you know the percentage that you are going to pay in case you are late in paying your debt.

What is the difference between delinquent interest and simple interest?

Simple interest is that which is paid on an initial capital and has to do with the price of money. In short, if someone asks for a loan, they must pay a certain amount for the money they receive. It is recommended that you maintain a payment plan to always be up to date and above all pay only simple interest. This will make your credit perform well and work properly for you.

On the contrary, default interest is only generated when you do not pay your credits or loans on time. That is, it is a type of punishment for not paying in the time that both you and the institution that has lent you the money have established in the contract.

How is default interest calculated?

As we have already mentioned, default interest is calculated on the amount that you had to pay on a set date and not on your total debt. It is important that the amount includes: interest and amortization.

I share an example:

The conditions of your credit are the following:

  • Monthly payment of your credit: $ 5,000 pesos
  • Payment date: June 30
  • Default interest: 3% monthly
  • Days of delay: 25

To calculate the amount due after 25 days, first multiply the monthly payment ($ 5,000) by the monthly delinquent interest percentage, which gives you $ 150. This amount would be what you would pay for the 30 days, now you must divide by 30 (days of the month) and multiply it by your days of delay, in this case 25. This gives you the default interest you must pay: $ 125 pesos.

How does paying delinquent interest affect you?

In addition to the fact that your debt increases day by day, the default interest will not add to the payment of your initial debt and each institution establishes the interest it will charge. Another disadvantage is that your credit history will be affected if you do not make your payments on time. Put together a plan to settle your debts and avoid delays, this will allow you to improve your score in the credit bureau.

Avoid paying late interest and obtain better credit conditions in the future.

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