Anyone who has ever had problems repaying a loan knows that debt service charges and penalty fees are rising quite quickly and that, in addition to the original amount, other additional costs must be incurred. Due to this, paying off the debt is even more difficult, and each subsequent day of delay makes the situation even worse. Therefore, the indebted person should not only try to reach a settlement with the creditor as soon as possible, but also use all the opportunities that would lead to a reduction in debt. One of them is the cancellation of penalty interest.
What is penalty interest?
Penal interest is interest payable to a creditor for late repayment of a financial liability. It can be a loan, non-bank payday loan or installment loan, but also an invoice fee, utility bill and – most importantly – it is enough to have one day past due to pay interest. In this way, criminal charges, also known as late payment, are the most common form of compensation for a creditor that applies to all types of financial settlements.
It should also be mentioned that compensation in the form of penalty interest is due by law, without the need to prove losses caused by late repayment – the mere fact of such delay is sufficient. It is also good to know that legislation extends compensation for delay not only to entrepreneurs, but also to private individuals. So if you grant a private loan to a friend or family member and you don’t get your money back on time, you can apply for interest.
The maximum interest is determined on the basis of the ordinance of the Minister of Finance. Currently, statutory interest amounts to 7% per annum, while maximum interest – 14% per annum, and in this respect they are calculated in non-bank loan institutions.
Cancellation of penalty interest – is it possible?
Pursuant to the provisions, the right to cancel the penalty interest lies solely with the creditor and can be expressed on the basis of a statement in response to the debtor’s request or settlement. No forced or official redemption is possible. We can only ask for this at the loan company in which we have the debt.
However, loan companies rarely make their own claims themselves. They usually do not have properly developed debt collection departments, as maintaining them would be too expensive. Therefore, only the largest brands can afford debt collection, and most of them either rent professional debt collection companies or transfer their debt to them, in other words – they sell debt. At this point, the debt collection company is becoming a new creditor and it also has the option of canceling criminal interest.
How do you write an application for redemption?
The creditor’s application for remission of criminal interest is not uniform and can be written in any way so that it clearly expresses the request and contains the appropriate nomenclature – the key is to include the word DISSEMINATION. So you can write them yourself or use the templates of such an application available for free on the Internet. It is important to include in it all the data enabling the debtor and the reason for the debt – in this case it will be the loan agreement, its number and date of conclusion.
However, the most important is the argument – you should describe in detail your financial and professional situation and the reasons for its deterioration, which make it impossible to pay off the whole debt. First of all, the debtor should show good will and willingness to pay the debt and emphasize that it would be possible if the debt was smaller. It is important to remember not to leave arguments to yourself and document everything. If you earn little, it is worth attaching a certificate from the employer, and if the problem is health problems – a certificate from the attending physician. Do not be afraid of disclosing confidential information about your health, because at the patient’s request, the doctor can prepare a document confirming the place of treatment, the degree of chronicity of the disease and the estimated duration of treatment, without going into the details.
Cancellation of other costs
As the debt collection company charges additional fees for servicing the debt, and has also bought it out from the loan institution for a fraction of the value, it will not be losing on debt recovery if it loses interest. That is why it is a common practice. However, what are the chances that other fees will be written off?
Slow repayment of the debt, even its capital amount, may lead the creditor to write off the contractual interest that was specified at the time the loan agreement was concluded – currently it can range from 0 to 10% per annum (maximum four times the lombard rate). He may also give up a certain percentage of the entire debt and this is not an improbable situation. A lot depends on whether we are able to get the debt collector to agree and ensure that the debt is regularly repaid. It is most likely that the creditor will agree to write off a percentage of the debt if he is offered a one-off repayment.
Let’s act before the case goes to the bailiff
Regardless of whether the creditor agrees to write off the penalty interest and other fees, it is better to start paying back the loan before the case goes to court. If bailiff enforcement is necessary, the debtor will have to face really high fees. You will have to pay no less than approx. $ 350 (10% of average monthly salary) for a bailiff’s action regarding cash benefits. This is the minimum amount, but for higher debts it can be up to 15% of the amount due. The bailiff will charge a fee even for attachment of a salary or bank account – it is 8% of the debt, but at least $ 176, or 5% of the average salary.