Why does the default interest rate exist?
Credits are an act of trust, you never know if that money will be returned to you.
That is the reason why the default interest rate exists
I once heard a phrase that caught my attention, especially since it contains a way of seeing personal loans that is unusual, this refers to the credit business is a business of trust. In that sense, someone must have the confidence to lend to those who need it.
If you fail to comply with any payment established in the contract you signed, in addition to breaking that trust, you will be charged what is called a moratorium interest, which is nothing more than a kind of punishment, when a delay in an acquired commitment occurs. This represents a way in which the person or company granting the loan is covered by default.
According to the National Commission for the Protection and Defense of Users of Financial Services (Condusef), in a loan, there are two types of interests: ordinary and moratoriums.
Ordinary interests are those that are generated by the regular use of a loan, you will always pay this type of interest. For example, on a credit card, you will pay them if you are not a total zero, that is, if you do not usually make full payment of your purchases on the cutoff date.
While the moratoriums are those charged by the bank when you fail to pay even the minimum
These default interests are charged based on the minimum payment to be made and added to the ordinary interest. But, if 90 days go by without paying a peso to your account, default interest is calculated based on your total debt.
It is important to understand that default interests only operate once payment terms have expired. These interests are agreed in the contract signed by the parties, that is, the credited and the grantor. So it is important that before committing you are aware of what you might be paying in case you do not pay on the agreed date.
In Mexico, financial institutions such as banks apply their own rules to calculate the default interest
According to Condusef, there are entities that multiply up to three times the ordinary interest rate to establish the calculation of default interest.
Thus, default interests exist as a way for customers to find more benefits in paying on time and in a manner, as established at the beginning of the contract. Definitely, these interests are a punishment for those who breach and give reasons to always be up to date with the payments of our debts.