When you sign up for a title loan, you must be fully aware of the so-called default interest. This is a sum of money that is requested from the beneficiary of the loan in the event of late or non-payment of one or more installments. But how exactly do they work and how are they calculated? These and other questions will be answered in this practical article.
When does the default interest take for Title Loans?
Default interest is activated following the expiration of an installment as established by the loan amortization plan. More precisely, when the debtor makes payment between the 30th and the 180th day after the deadline , he will be declared in default and will then be required to pay the so-called default interest.
Why do these interests apply? For the simple fact that the creditor, deprived of his source of revenue within the time agreed in the contract, is entitled to be compensated for the economic damage suffered. The default interest is calculated starting from the day after the installment payment has expired and continues to accrue up to the day on which the debtor makes the payment.
But how are the default interest calculated?
The calculation of default interest is made with a simple mathematical formula. Days of delay x Amount x Rate% of arrears / 36500 To understand this better, let’s take the following practical example. We consider a delay of 20 days in the payment of an installment of the value of 500 euros with a default rate of 6%.
The calculation will give the following result: 20 (days) x 500 (installment amount) x 6 (default rate) / 36500 = 1.64 euros The amount is not at all alarming. Yet the question of default interest is not to be taken lightly. Why never? For the consequences it could bring with it.
What happens when you incur default interest
First of all, delaying payment involves reporting the bad payer. The consequences could be rather serious, since various or even a single report could stain the credit history of the debtor and compromise the obtaining of possible future financing. Another situation occurs when the debtor sins of recidivism and for 7 times late or fails the balance of the installment.
In such circumstances, the credit institution that granted the loan has every right to invoke the aforementioned irregularities as a reason for termination of the contract. The loan or title is therefore canceled, to be exact starting from day 180 after the expiration of the repaid installment.