Penalty interest is a type of financial charge. This charge applies when loan terms are not met.
Examples include late payments on property loans.
Penalty interest differs from late fees. Late fees are one-time charges.
Penalty interest accumulates over time until the overdue amount is paid.
One popular feature of penalty interest is its compounding nature. Banks apply this to overdue loan payments.
Another is the variable rate, determined by the initial loan agreement terms. A third is the specific timeframe for accumulation, usually starting immediately after the payment due date.
Common features of penalty interest include the calculation method, which is based on the outstanding loan balance. Daily accrual of interest is another, starting the day after a payment is missed.
Notification requirements exist too, where lenders must inform borrowers of the incurred penalty interest.
Unusual features involve penalty interest waivers. Some lenders may waive penalties as a goodwill gesture.
Interest rate caps limit how high penalty interest can go. Grace periods offer a window after the due date before penalty interest begins.
Unique features include the ability to negotiate the penalty interest rate before signing the loan agreement. Some agreements include a descending scale for penalty interest, decreasing over time.
Automatic conversion of penalty interest into a separate loan is another, creating a new repayment schedule.
Comparing penalty interest to similar financial charges, it’s clear its impact can be more significant over time. Unlike one-time late fees, penalty interest can substantially increase the total amount owed if not addressed promptly.
For more information on financial terms related to real estate investing, visit our glossary about Bangkok real estate.