Agree to Interest
Paying interest can be quite confusing. We often get legal advice from friends who aren’t lawyers, which leads us to believe that the way we are doing our business is the right way. Here’s what you need to know when you charge or agree to interest:
If your debtor is in default, interest can be claimed from the date of summons, or from the due date for payment if there is an agreement to pay interest. Compound interest can only be claimed if there is an agreement for compound interest. If there is no agreement, then only simple interest can be claimed.
Interest should be paid at the rate that was agreed upon between the parties. If an agreement wasn’t made, then you should be following the rate fixed by law or trade custom. If you have failed to meet these criteria for paying interest, interest must be calculated at the rate prescribed by s 1(2) of the Prescribed Rate of Interest Act 55 of 1975. In 2007, this rate was 15,5% per annum.
How does the National Credit Act affect the interest you’re paying?
The Usury Act 73 of 1968 provided the rates that you should be paying. Interest may not exceed these rates but it should be noted that the Usury Act was repealed by s 72(4)(a) of the National Credit Act 24, with effect from 1 June 2006. In terms of the NCA, the maximum penalty interest that can be agreed to is 2% per month.
When does interest stop running?
Interest usually stops running when the unpaid interest equals the outstanding amount of the capital sum. This rule (called the in duplum rule) applies to all contracts where a capital amount, which is subject to interest at a fixed rate, is owed (such as money-lending transactions).
Want legal protection when doing business?
Protect yourself when you are doing business by getting your legal agreements online. Verbal agreements just aren’t good enough when it comes to money and it is necessary to know that you have a written contract when you are doing business. Take a look at our agreements regarding suretyship, cessions and other
credit related documents to make sure you have peace of mind when claiming or paying interest!
Please note that this information is supplied for general information and does not constitute legal advice. It is advisable for you to contact a legal practitioner for guidance in respect of your unique requirements.
Agreements Online
