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Interest on Arrears in Costa Rica

Late Payment Compensation

The legal method for compensating the lender when a debtor fails to pay on time is “interest on arrears” in Costa Rica.

When a borrower defaults, the lender has the authority to demand full payment, pursue a foreclosure proceeding, and collect interest on the balance owed. The lender will impose a penalty on arrears until the borrower pays the accumulated interest in full.

The Legal Statement

The Attorney General specifies that the interest on arrears in Costa Rica can lead to penalties and compensation for the unreasonable delay of the debt. So it must correlate to a certain proportion of the parameters established by the law that can vary.

You can check this in article 498 of the Code of Commerce, which establishes:

Article 498. – Late interest shall be equal to current interest unless otherwise agreed.

When current and late interests are agreed upon, the latter cannot be higher than 30% of the rate agreed for current interest.

This is a mandatory rule, and the parties cannot waive it. The National Registry, for example, will reject the mortgage registration if the late interest exceeds the 30% rule. So if parties agree to a 12% current interest, the maximum interest on arrears should be 15.60 (12+3.6).

Interest on Arrears Calculation

Interest on arrears is calculated differently to the current interest. It’s how much the payer should have paid on a certain date, not on the debt’s outstanding balance at the time. It confuses people because they consider that when there is a delay, the interest on arrears replaces the current interest until they pay off the debt.

Independent interest calculation:

  1. Current interests on the amount of the loan;
  2. Interest on arrears on the amount of the installment in arrears.

Administrative Charge

Commercial banks typically include a “penalty” in case of late payment. However, they usually charge a fixed fee only once, which is referred to as an “administrative charge”.

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