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 from 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:
- Current interests on the amount of the loan;
- Interest on arrears on the amount of the installment in arrears.
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”.
Reasons For Late Payment
You might wonder why most individuals are always late with their payments. There could be anything to do with your health. There have been debtors who have been unwell for a little while but have made a full recovery later on. But getting caught up is frequently exceedingly challenging.
One of the other reasons may be that they are in a business that is affected by the seasons, and the slow time of year is drawing to a close. In this case, they would go on vacation during the busy time of year. We frequently hear things like “I am out of the country and cannot wire from here,” “I was at the beach with my family,” and other similar statements.
By additonal on the late fees to the principal amount at the end of the term, you allow them to continue with their repayment strategy. As long as they make their monthly payments, the fees can accrue to the end of the term giving you a bigger payout.
Late fees incentivize the borrower to pay on time, which gives you peace of mind. They can also enhance your return if the borrower makes their monthly payments, but not always on time.
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